Robinhood is a highly popular financial app among younger investors today.
With a few taps on your phone, you can invest in stocks, cryptos, and even options through the Robinhood app. The company also recently launched their retirement account option for investors that features a 1% match.
However, some investors are concerned about whether or not Robinhood is safe. Despite the company being around for over ten years, some investors worry that Robinhood may not be as established as a longer standing company such as Vanguard or Fidelity.
So, what would happen if Robinhood went out of business? What would happen to your portfolio and funds in the platform? Let's dive in.
First of all, if you invest in stocks or ETFs with Robinhood, your assets have SIPC insurance.
You can read more about this in our full article on Robinhood SIPC/FDIC insurance here.
In a nutshell, this covers you in the event that your broker loses your financial assets or cash. Since Robinhood is a member of SIPC, you are covered for up to $500,000 worth of securities, including $250,000 which can cover cash.
So, if Robinhood somehow went out of business and lost customer assets, the SIPC would step in. Your assets would be safe regardless of what happens to the brokerage.
If you use the cash management products offered by Robinhood, these accounts also have FDIC insurance.
Robinhood itself is not actually a bank. It's cash management offering is actually made possible with their partner Sutton Bank.
If Robinhood were to go out of business, that would have no effect on your deposits which are actually held at the partner banks.
First of all, it is very unlikely that Robinhood will go out of business.
While they are not profitable, they have a huge loyal base of users. Most tech companies are not profitable for many years.
What would most likely happen if Robinhood went out of business is that a larger brokerage platform would purchase or acquire them and take over the customer accounts.
If you own stocks/ETFs with Robinhood or have idle cash in your brokerage account, these are covered by SIPC insurance.
If you use cash management products, you have coverage through the FDIC insurance of the partner banks.
Lastly, crypto held with Robinhood is not covered by any federal insurance program. That is because it is not recognized as an asset, since it is brand new. Instead, Robinhood has a separate third party commercial insurance policy in place against crypto theft.