
SIPC Says It Has Serious Concerns About Robinhood's New Product - jakarta
https://www.bloomberg.com/news/articles/2018-12-14/sipc-says-it-has-serious-concerns-about-robinhood-s-new-product
======
hn_throwaway_99
Through all of this I can't help but be reminded of the 2008 financial crisis
and think "this is not going to end well." One part of that crisis was
Icelandic Banks making a huge push for savings all over the UK and other parts
of Europe ("IceSave") with the promise of better interest rates. When it all
went belly up those savers realized these Icelandic banks were not quite the
same thing as UK banks and Iceland refused to make depositors whole.

If Robinhood had offered this as a normal bank with FDIC insurance I would
have been impressed. For now it just seems they're just moving a little bit
higher up the risk/reward curve and trying to pretend the risk is the same.

~~~
all_blue_chucks
Short term investment grade debt has a default rate of near-zero and pays more
than 3%. See for yourself:

[https://investor.vanguard.com/etf/profile/VCSH](https://investor.vanguard.com/etf/profile/VCSH)

It is entirely possible for them to safely promise a 3% account under these
conditions. This is not at all like the financial crisis. It's just wrapping
an investment grade bond fund in a bank account interface.

~~~
evmar
I clicked 'performance' on that page and it says 1.5% over the last five
years. Am I reading it wrong?

~~~
all_blue_chucks
Look at the "SEC yield." That's what it pays going forward. Returns were lower
over the past five years because the Fed had lowered rates to stimulate the
economy.

~~~
kgwgk
The yield is only part of the return, one has to consider also the change in
price. If interest rates go up prices will go down and the actual return will
be lower than the yield.

Over the last 12 months, the price of the VCSH fund is down more than 2%. This
offsets the dividends paid with the coupons received and results in flat
performance.

------
kgwgk
Matt Levine comments on this today:
[https://www.bloomberg.com/opinion/articles/2018-12-14/nyse-n...](https://www.bloomberg.com/opinion/articles/2018-12-14/nyse-
needed-some-pretend-traders)

"There is a lot of confusion about what Robinhood’s thing is. Delightfully, it
is called “Robinhood Checking & Savings,” apparently because calling it a
“checking account” or a “savings account” would come too close to implying
that it is a real bank account insured by the Federal Deposit Insurance Corp.,
while “checking & savings” is not a thing and so does not carry that
implication. A magic ampersand!"

~~~
MrMember
That's great. It's like the "chicken wyngz" you can buy at the grocery store
that are probably chicken but can't legally be called wings.

~~~
conanbatt
I prefer the chikken wings, which are probably wings but cant be legally
called chicken.

~~~
plopz
You should try the Frozen Dairy Dessert.

~~~
doctorOb
Or processed cheese food [1]

[1]
[https://www.accessdata.fda.gov/scripts/cdrh/cfdocs/cfcfr/CFR...](https://www.accessdata.fda.gov/scripts/cdrh/cfdocs/cfcfr/CFRSearch.cfm?fr=133.173)

~~~
ceejayoz
Try "potted meat food product" on for size.

Ingredients: Mechanically Separated Chicken, Beef Tripe, Partially Defatted
Cooked Beef Fatty Tissue, Beef Hearts, Water, Partially Defatted Cooked Pork
Fatty Tissue, Salt. Less than 2 percent: Mustard, Natural Flavorings, Dried
Garlic, Dextrose, Sodium Erythorbate, Sodium Nitrite

~~~
Scoundreller
Seems like a good way to value-add the parts of animals that would otherwise
get turned into dog food or exported.

------
DevX101
> “I disagree with the statement that these funds are protected by SIPC,”
> Stephen Harbeck, president and chief executive officer of SIPC

How the hell did this product get launched?

~~~
jfim
Probably because someone took "ask for forgiveness, not permission" a bit too
far.

~~~
rootusrootus
Or the president of SIPC is not speaking authoritatively for the organization
and doesn't realize the RH lawyers have already been talking with SIPC about
this.

Of course, maybe that didn't happen, but between the idea that RH would build
and announce a new product without running past the proper regulatory
authorities, and the idea that the president of SIPC might just be wrong ...
well, the latter seems more plausible to me.

~~~
darkerside
You really think the president and CEO of the SIPC is a... freaking clown??
Sorry if that tone is harsh, but that statement appears completely ludicrous
on its face to me. Can you provide a little context on why you would trust
startup lawyers over the chief executive of a major government organization?

~~~
mynameisvlad
Nobody said a "freaking clown" or anywhere near that. The higher up you are at
a company or organization, the less visibility you have into the day to day
operations. What OP is saying is simply that the CEO of SIPC may not be
informed in the discussions that already happened with Robinhood.

Simply put, Robinhood has _far_ more at risk than the SIPC by launching
without SIPC insurance. The banking industry is heavily regulated and
Robinhood has been in the brokerage game for enough now to know that a major
product launch like this in a tightly regulated area requires massive amounts
of paperwork and approval. A mistake like this could collapse not only this
new product but also their brokerage. It's _far_ more likely that they have
done their due diligence before announcing and launching a product that has
that big of a risk.

~~~
darkerside
It's more likely than the CEO of this organization making an uninformed public
statement. Doing so is indeed the behavior of a clown. But I guess we'll see.

Edit: We don't even have to wait! SMH...

[https://www.google.com/amp/s/techcrunch.com/2018/12/14/robin...](https://www.google.com/amp/s/techcrunch.com/2018/12/14/robinhood-
insurance-sipc/amp/)

------
luckydata
I don't understand the infatuation silicon valley has of Robinhood. Take
almost every possible bad idea about personal finance and put them in an app,
you get Robinhood. The business model is also suspect, I think there's a
little more that hasn't been disclosed and I suspect the chase for cash
started when the crypto currency fad started deflating in a hurry. I wonder if
Robinhood is hiding something bigger under the covers.

~~~
kinkrtyavimoodh
> bad idea about personal finance

Such as?

~~~
jartelt
The vast majority of people should just be maxing out their 401k and investing
in index funds.

They shouldn't be using Robinhood to buy individual stocks, buy
cryptocurrency, or do options trading.

~~~
dwild
> They shouldn't be using Robinhood to buy individual stocks, buy
> cryptocurrency, or do options trading.

What if they do it for fun?

Personally, I would have fun having a few thousands there (but I'm Canadian),
it's not worse than having a few thousands over a gaming computer, or gambling
at the casino.

If you consider Robinhood as the way to finance your retirement, well you are
doing something pretty bad, but that was always true for any stock trading.

~~~
vec
If you understand what you're signing up for and still want to dabble in stock
trading for fun then sure. Go wild. Everyone needs a hobby. But the homepage
of robinhood.com has the following call to action above the fold:

> Investing, Checking & Savings. All for Free.

> Robinhood gives you the tools you need to grow your savings, invest in your
> future, and do more with your money.

Does that sound like "this is not an appropriate way to finance your
retirement" to you?

~~~
anthuswilliams
What should their ad copy say instead? "Robinhood gives you the tools to lose
all of your money making impulsive decisions" ?

All brokerage accounts advertise themselves as investments, even if the
reality is that idiots open them and lose all of their money trading options.

I mean, if you really have this expectation of marketing copy, I don't blame
you, that's a totally legitimate position to hold. It's just not one I would
expect many people to share.

~~~
vec
The grandparent talked about treating it like fantasy sports, and if they
advertised themselves like, say, Draft Kings does then it would be one thing.
As it is, though, the more thoroughly you trust their representation of how
their product should be used the worse off you will be. I usually take that
particular trait as a big red flag that a the universe would be better off
without the company in question.

And yes, this criticism does apply to most brokerage accounts. Most brokerage
accounts don't have half of Silicon Valley fawning over them, though.

------
panarky
Robinhood's offering is indistinguishable from a cash management account at a
brokerage. Short-term deposits, check writing, debit card, interest bearing,
etc.

Fidelity Investments pioneered this product, and now it's available from
others like Schwab.

But at Fidelity, the cash management account is distinct from the brokerage
account. While the brokerage account is insured by the SIPC, cash management
funds are swept into FDIC-insured balances at actual banks.

Looks like Robinhood is gonna lose on this one.

Source: [https://www.fidelity.com/cash-management/faqs-cash-
managemen...](https://www.fidelity.com/cash-management/faqs-cash-management-
account)

~~~
acjohnson55
It seems like RH is taking this to the next step (at least with respect to
Fidelity) by building typical checking account features around it, with
parameters that are best-in-class.

~~~
SpaethCo
Fidelity already has best-in-class checking account features?

The CMA account has mobile image deposit, free online bill pay, check writing
(with free checks), free ACH transfers, free wire transfers, ATM/debit card
(with ATM fee reimbursement at any ATM worldwide, no less), etc.

The only “best-in-class” factor that Robinhood has presented is setting the
interest at 3%.

~~~
acjohnson55
Good to know, I was reading briefly from their site and didn't see any of
those things expressed upfront.

------
strict9
The whole "this can't end well" seems to come at every Robin Hood product
announcement.

The somewhat recent addition of crypto is just depressing. They've integrated
it with chat and live announcements of transactions, so you see people's names
as they buy $1500 or $2500 worth of crypto as the whole market makes an
inverted hockey stick nosedive to zero.

But the most absurd thing was seeing the HN comments yesterday as people were
saying they were living up to their name of taking from the rich and giving to
the poor. They're doing something worse--tricking non-rich people into
thinking they'll get rich, while making a ton of money in the process.

~~~
tomtimtall
If they make a ton of money but give users an easy 3% account I wont complain.
Why is everyone so mad at them for being successful when they are offering
cheaper services then the rest of the market!? Do they need to hire a homeless
CEO to actually qualify as doing something good for society overall?

~~~
bbaumgar
They are exposing a vulnerable and naive class of investors to a higher-risk
asset class in an arguably deceitful way. If their 3% account was SPIC
protected (and therefore low-to-no risk), this would be a totally different
conversation.

~~~
nodesocket
I have a money market account at Capital One that earns 2% and is FDIC.
Staying there.

------
obeattie
It's a bit jaw dropping that they've launched this without talking to the SIPC
to check that they agree with the statement that they provide FDIC-like
protection on these accounts. I wonder what happened here…

~~~
Mtinie
AFAIK they haven't yet launched, it's not going to be until "early 2019". Not
a defense of Robinhood, but their lack of (apparent) SIPC protections today do
not necessarily imply they will be missing when they formally launch with
actual customer deposits.

~~~
EpicEng
Yet it's being marketed as SIPC insured _today_.

~~~
Mtinie
You're right. I thought I had read it as "will be insured" but now that I go
back and look at the content on
[https://checking.robinhood.com](https://checking.robinhood.com) I see it
reads "Every Robinhood account is SIPC insured up to $250,000 in cash and
protected by modern encryption so you can rest easy and save confidently."

No bueno.

------
warp_factor
Robinhood strikes me as a complete financial amateur-ish company, trying to
attract millennials that don't know better by branding themselves as a cool
tech company.

I have been using Ameritrade for a while and was curious about their no fee
platform so gave it a quick go. The graphs have no legends associated in the
app. The spreads seems not up-to-date with official quotes, etc. I went back
to Ameritrade as fast as possible.

They are the "go fast and break things" of finance. There is a good chance
that this will not end well.

~~~
whoisjuan
I have been using Robinhood for years, but I don't disagree at all with this
statement. I have always been a little bit suspicious of their approaches.

For me the strangest thing about their business is their zero-fee approach.
Yes you can make money by getting interest from uninvested funds + premium
subscriptions + trade arbitrage, but if it's such a good business why aren't
the incumbents taking similar approaches?

Contrarians would say that incumbents are just to engrained in their past
approaches to actually adopt modern strategies, but I had that extremely hard
to believe, especially when one of the incumbents, E-Trade, was the pioneer of
online trading.

Also, unlike other industries, financial firms are savage. They're not scared
to make risky bets and spin-off new businesses and strategies. Their industry
is naturally risky, so they have the experience and tenure to make risky bets,
without souring stakeholders.

I always give Robinhood the benefit of the doubt, because in my day to day I
personally can say that it works great. They definitely nailed the Customer
Experience. However that doesn't mean that they have an actual viable long-
term business, so I prefer to stay reasonably cautious... Time will tell.

~~~
jkqwzsoo
> For me the strangest thing about their business is their zero-fee approach.
> Yes you can make money by getting interest from uninvested funds + premium
> subscriptions + trade arbitrage, but if it's such a good business why aren't
> the incumbents taking similar approaches?

They do, they just charge you extra commissions _on top_ of what they make
selling order flow, etc, etc. Commissions make up a miniscule portion of
income for brokerages. I think that fees a) keep out the "riffraff" and b)
brokerages know that it's a zero-sum game to compete on them.

Asking this question is like asking why Ally and Goldman Sachs can offer 2%
APY savings accounts, but Bank of America and Chase can only offer 0.01% APY.

There are similarly low-cost brokerages which offer dangerous products, like
$500 intraday futures margin (about 250x leverage), 400:1 leverage on Forex
products, or more traditional low-cost stock trades. The difference between
$5/trade, $1/trade, and $0/trade isn't that significant in reality.

~~~
eclipticplane
> I think that fees a) keep out the "riffraff" and b) brokerages know that
> it's a zero-sum game to compete on them.

There are also costs per position per investor. Some services that brokerages
have are based on position counts. An investor with 10 shares in 1 stock is
cheaper to maintain than an investor with 1 share in 10 stocks.

(One example is prospectuses. If you buy a fund, you're entitled to the
prospectus to be delivered within a certain amount of time post trade. If you
just by 1, 2, 3, then 4 shares of the same fund, you only get one
file/document delivered to you.)

------
ucaetano
Which leads to one of two scenarios:

1) They knew SIPC wouldn't cover it, but decided to lie about it anyway

2) They weren't competent enough to assess the risk that SIPC wouldn't cover
it, but decided to launch anyway without contacting the SIPC

Regardless of which is the truth, I wouldn't trust my money with someone who
does either. Might as well jump into a tried-and-true pyramid scheme like
bitcoin!

~~~
dawhizkid
Apparently they purposely called it a "checking & savings" account because
they were well aware that technically it is neither a "checking" nor a
"savings" account and that a "checking & savings" account does not really
exist to protect themselves from accusations of false claims...

~~~
jkravitz61
They are still claiming it is SIPC insured- which is false, regardless of what
you call it.

~~~
pitaj
It's not necessarily false - that's up for various attorneys to decide.

~~~
ucaetano
Technically true, but irrelevant. Everything might be up for attorneys and
judges to decide.

------
caymanjim
Another example of startup hubris. Much like Uber and AirBnB got started (and
in many cases, continue to operate) by flouting regulations, Robinhood thinks
they're being innovative, when they'll really just hoping they can get big
enough that they can buy or bully their way past the rules. At least long
enough to get acquired.

It might work, but in this case, the people most likely to get screwed are the
customers.

~~~
wallawe
AirBnB and Uber are both examples of companies that were huge wins for
customers/consumers. Just because they flout regulations which are often times
outdated and unnecessary (re: protecting inefficient incumbents) doesn't mean
they aren't doing what's good for the consumer.

I agree though that Robinhood is a different story with potentially harmful
consequences for unsophisticated investors looking for a safe/easy investment.

~~~
ocdtrekkie
The people sexually assaulted, discriminated against because of their skin
color or sexuality, and those recorded in their beds without their consent
would all presumably disagree that Uber and AirBnB flouting regulations made
for huge wins for customers/consumers.

EDIT: The fact that these crimes "have happened at hotels/in taxis as well"
ignores the fact that they are far more likely in an environment where
regulations meant to prevent or reduce them are wholesale ignored.

~~~
wallawe
It sounds like you're conflating common law with industry regulations.

If I'm a fisherman in Florida, and I need to follow regulations for the
fishing industry there, they don't have a stipulation that you can't
discriminate against certain persons based on age, raced, gender, etc. when
you take customers out on expeditions.

Why? Because that's covered by United States law.

Yes these things happened, and yes they are atrocious but they have nothing to
do with the regulatory gray areas that these companies operated in.

------
aresant
“I disagree with the statement that these funds are protected by SIPC,”
Stephen Harbeck, president and chief executive officer of SIPC.

Not sure that leaves a lot of room for speculation - don’t sign up to use
Robinhood as a savings account unless you are comfortable doing so without an
FDIC level of guaranteed protection.

~~~
MrRadar
Without deposit insurance Robinhood would be _extremely_ vulnerable to a bank
run. In the event of even a slight market downturn I can't see why depositors
wouldn't immediately withdraw their funds to an insured account (at the cost
of only a slight reduction in interest) just to hedge their risk.

------
neom
"“The statute that we administer says that we protect money with a brokerage
firm that is used for the purchase of securities,” he added. “On Robinhood’s
help page, it says that you don’t need to invest to use Robinhood checking and
savings, that statement is wrong. If you deposit money for any other purpose,
it is not protected.”" \-- If they are using the deposit to then behind the
scenes purchase a security directly, why wouldn't that be protected??

~~~
CydeWeys
The SIPC insures and protects _consumers_ , not the brokerage/investment bank
itself. So if the funds are deposited by the customer in order to buy
securities on behalf of the customer, then it's protected. If the funds are
deposited by the customer in order to pay out interest, and the only one with
the intention of investing that money into securities is the brokerage itself,
then it's not protected.

~~~
metafedora
Isn't Robinhood's Checking & Savings service about the same as non-invested
cash in an E*Trade account? That would mean there are a lot of consumers
assuming the same risk if they invest with the many brokerages covered by
SIPC, since its impossible to not have cash floating around after you fund
your account or take profits.

~~~
freeone3000
The problem with this is that Robinhood claims you can have a Robinhood
"Checking and Savings" account and not buy stocks with it - and the SIPC is
saying no, you actually do need to intent to buy and sell stocks with it and
to use this account as a source of funding in order for it to be insured.

------
mrfredward
Normally brokerage accounts fall under the SIPC and bank accounts under the
FDIC.

Robinhood thinks their checking account should fall under the SIPC...so is
their bank account not a bank account? What am I missing?

~~~
wp381640
It's a brokerage account where you buy US Treasuries but also made liquid via
a deal with Mastercard and branded as a chequing account

It's kinda smart - but i'm curious how they settle some of the backend with
daily transactions moving in and out - if they're actually making bond
purchases/sales with each transaction, for each customer each day, or for all
customers each day etc.

edit: fwiw I think the entire premise of these new products and 3% paid (way
over what treasury bonds pay) is as a loss leader to the gambling that is a
lot of the "investing" done by Robinhood users. Must be temping to buy some
Tesla options once you have a chequing account in the same app.

edit 2: their fine print:

> Robinhood Checking and Savings is an added feature to existing Robinhood
> accounts and is not a separate account or a bank account.

so they're saying they might market it as a bank account, but it isn't

~~~
DennisP
I'm not sure what you mean by "way over" but 6-month t-bills are paying 2.5%
right now. It's probably a loss leader but since they'll make money from
merchant fees on debit cards, it might not be that much of a loss.

~~~
wp381640
I doubt they'd be able to 100% buy tbills at that maturity length (hence
curiosity on what they're doing on the backend here), but even assuming 2.30~
average plus whatever Mastercard kickback is negative 50-70bp is still a hell
of a margin to make on selling consumers tbills and not raising funds for your
own investment activity

edit: a better way to explain it - we'll give you tbills at 3% p.a and let you
pull out/in whenever you want and handle the rest is a hell of a business
model without the rest of the story

~~~
whitepoplar
My guess is: they're investing in 6-month T-Bills, they're expecting rates to
rise over the next 6 months to 1 year, they're covering the remainder out of
pocket, and by doing this they're capturing the lion's share of their target
market before their competitors do.

In addition, I'm guessing their AUM are low relative to their popularity. Lots
of millennials may be very vocal about Robinhood, but may not have the quietly
massive asset balance that boomers have, tucked away in Schwab, Fidelity, or
Vanguard. This could be a land grab for AUM to support future VC rounds, an
acquisition, or an IPO.

------
dmarlow
When I saw the original announcement I thought to myself, that's a high
interest rate, but it sounds to good to be true; I probably ought to stay away
as I'd rather play things safe with my money.

------
mlthoughts2018
“Had they called us...”

ffs - they didn’t even do the most basic due diligence on this?

This is not just an indicator that this particular product might be in
trouble, this is another order of magnitude kind of incompetence that makes me
wonder why anyone would trust this company at all.

Wouldn’t you have to feel like the probability they end up with a major
security issue, funding issue, executive behavior issue, etc., are all
magnified by this knowledge?

I mean really, this is a _staggering_ thing to read. I don’t think there could
be hyperbole in this, it’s just incredible hubris-based incompetence.

------
kyleblarson
Not to mention this:
[https://old.reddit.com/r/wallstreetbets/comments/a5iwgh/robi...](https://old.reddit.com/r/wallstreetbets/comments/a5iwgh/robinhood_options_fat_finger_glitchbug_thread/)

------
smaps
I had a bit of interest on this when I first read about it, but was a bit
skeptical then... I wouldn't touch this at all now with no guarantee that the
deposits are insured.

------
Animats
Here's their very brief unaudited financial statement.[1] This makes no sense
for a financial institution. How can their liabilities be so low? Anything on
deposit with them is a liability for them. This seems to say "all your assets
are belong to us."

[1]
[https://d2ue93q3u507c2.cloudfront.net/assets/robinhood/legal...](https://d2ue93q3u507c2.cloudfront.net/assets/robinhood/legal/RHS%20Statement%20of%20Financial%20Condition.pdf)

------
forgottenpass
"You see, Mr. Griffin, what makes us different from other banks is that we're
not a bank."

------
jschmitz28
Assuming patio11’s comment[1] from yesterday is correct that this is a loss
leader intended to target millennials with low value accounts rather than
whales, maybe this is Robinhood’s intended outcome to make it less attractive
to the customers they don’t want?

[1]
[https://news.ycombinator.com/item?id=18673426](https://news.ycombinator.com/item?id=18673426)

~~~
gus_massa
It may be true, but it's not relevant for the current article. The questions
is if these accounts will be insured by the FDIC or the SIPC or neither?

------
deadmik3
“The statute that we administer says that we protect money with a brokerage
firm that is used for the purchase of securities,” he added. “On Robinhood’s
help page, it says that you don’t need to invest to use Robinhood checking and
savings, that statement is wrong. If you deposit money for any other purpose,
it is not protected.”

So it is insured, unless they can prove it's not for investing?

~~~
gonational
The burden of proof is not on the insurer, but the insured.

Think through this like a court case, where the insured is suing the insurer.

The insured doesn't simply go in front of a jury and state, " _SIPC owes me
$N. I rest my case._ "

~~~
deadmik3
What if I'm buying stocks with just some of the money? So I buy a couple
shares of some penny stock but keep the rest of my 25k uninvested, am I only
insured for the amount I have invested or is my entire account insured?

------
peteradio
Is this how it works??

consumer securities purchases protected by sipc

robinhood bank checking format:

deposit: money -> account -> robinhood backend securities purchased

withdrawal: robinhood backend securities sold -> account -> money

Is this the argument made by robinhood? Perhaps if that is laid out clearly in
contract, i.e. robinhood is granted agent status to purchase and sale
securities on behalf of consumer

~~~
alehul
Receiving agent status to purchase and sell securities on behalf of the
consumer would mean the consumer is consenting to possible losses from the
performance of those securities.

~~~
smileysteve
As is the case with any money market account...

~~~
alehul
Yes, point being that's not really the bank account Robinhood is trying to
offer.

------
stuart78
They've posted a response, for what it is worth:
[https://blog.robinhood.com/news/2018/12/14/a-letter-from-
our...](https://blog.robinhood.com/news/2018/12/14/a-letter-from-our-founders)

Not exactly confidence-inspiring, but we will see.

------
waterside81
Makes this top comment from yesterday seem even more flippant and re-inforces
the "trust us, we're smarter than you" mentality of certain regions of the
country:

[https://news.ycombinator.com/item?id=18673426](https://news.ycombinator.com/item?id=18673426)

------
IshKebab
Irrespective of if it is protected or not, surely there is some other catch?
Normally impossibly high interest rates are time-limited or balance-limited. I
think somebody mentioned this is a variable rate so presumably this is a
marketing ploy and they'll put it down to 1.5% in 6 months.

~~~
CydeWeys
Is there a "catch" when Uber rides cost less than the equivalent taxi ride,
and in fact cost less money than the ride itself actually costs to provide?

It's just VC money being burnt to acquire more market share. The intent isn't
to be profitable on the actual services provided, but to grow revenue and
profit on an eventual IPO.

~~~
sokoloff
It's not at clear to me that Uber costs less than the ride takes to provide
due to the differences between marginal and total cost accounting.

As an example, if I'm going to own my car anyway, I'm going to pay the time-
based depreciation whether or not I drive Uber. My marginal cost to drive a
mile is around 10 cents for power, 2 cents for tires/brakes, and 2-3 cents for
miles-based diminution of value. The fact that GSA/IRS allows $0.545/mile
doesn't mean that's my actual marginal cost, just that that's a permissible
financial rate for profit-seeking business usage. (As one example, the IRS
only allows $0.14/mile for charitable deduction driving, which squares pretty
well with my marginal cost estimate above.)

Near as I can tell from a few minutes of Googling, Uber pays $1.35/mile and
$0.21/minute in Boston, or roughly 10x the marginal cost of driving a mile.
That leaves a lot of margin for driving to/from fares, positioning yourself to
an in-demand area, disputed rides, Pool differences, etc.

------
Rafuino
"Move fast and break things" does not work in the heavily regulated worlds of
healthcare (e.g. Theranos) and finance (now Robinhood). FB and GOOG have
massive lobbying operations for this very reason, as they don't want
advertising to become like finance and healthcare.

------
Apocryphon
Let's talk about conventional alternatives to this. I've heard good things
about Ally bank's 2% saving account. Does anyone here use anything comparable?
How about credit unions?

~~~
illumin8
Radius Bank offers 2.05% interest on a savings account as long as you have
$25,000 balance, or 1.5% for balances over $2,500. It seems to be the best
option I've found. (see note for fine print).

They also offer a checking account that pays 1.2% with zero fees and even
waives ATM fees worldwide. These are all FDIC insured. I've been banking with
them for about 6 months now and they're pretty awesome, outside of having a
rather janky web and mobile app.

[https://radiusbank.com/personal/high-yield-
savings/](https://radiusbank.com/personal/high-yield-savings/)

Radius High-Yield Savings is a free savings account with no monthly
maintenance fee, no minimum balance requirement after $100.00 to open the
account, and is FDIC-insured up to the maximum allowed. Annual Percentage
Yield (APY) accurate as of 12/14/2018\. Minimum amount to open account is
$100.00. Rate tiers are as follows, 0.00% APY applies to balances of
$0.01—$9.99, 0.05% APY applies to the entire balance on balances of
$10.00—$2,499.99, 1.50% APY applies to the entire balance on balances of
$2,500-$24,999.99, and 2.05% APY applies to the entire balance on balances of
$25,000 or more. Rates may change after account is opened. Fees may reduce
earnings.

~~~
thatswrong0
Marcus by Goldman Sachs has 2.05% interest with.. effectively no minimum?
([https://www.marcus.com/us/en/savings/high-yield-
savings](https://www.marcus.com/us/en/savings/high-yield-savings))

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ineedasername
Their page [0] on the new product still mentions both SIPC and FDIC in
numerous places. If I wasn't following this news, the clear implication I'd
get is that my account was both FDIC and SIPC insured. This is really
irresponsible of Robinhood.

[0] [https://blog.robinhood.com/news/2018/12/13/introducing-
robin...](https://blog.robinhood.com/news/2018/12/13/introducing-robinhood-
checking-amp-savings)

------
ohiovr
They’ll give you 3% on savings by investing it in treasuries and pocketing the
difference. The 20 year is now 3.03%

and interest rates are rising

Its the Theranos of finance!

~~~
freeone3000
Theranos's product didn't work. This product may be a bad deal or a good deal,
but it's going to deliver what they promise. T-bills are illiquid if you want
the gains. They're promising liquidity in exchange for a cut of the gains.
Sounds reasonable, at least in theory.

~~~
ohiovr
You see, if Treasury interest rates rise, the value of existing treasuries
from a lower interest rate fall. If you have to wait 20 years to get whole on
the deal then it's effectively illiquid. But if you have to liquidate, then
you must lose prinicple. Its a problem ongoing right now in the bond market.

------
pascalxus
For those of you looking for a great place to park your money, try this one:
www.mysavingsdirect.com

it's now up to 2.4% for a online savings account, that is FDIC insured. i've
been using them for 2 years now, and it's been awesome. As far as i know, 2.4%
is the highest there is for online accounts. i'm surprised they don't top the
list on nerdwallet.com

~~~
fpgaminer
As general word of caution: is that extra fraction of interest worth the
hassle/risk of dealing with a less known bank?

What I mean is, banks like Ally offer both near-highest interest rates, are
well established, and provide a nice experience. Your savings account is bread
and butter in your financial life. Using some "janky" bank just to squeeze few
dollars probably isn't a good use of your time.

I'm not saying mysavingsdirect.com is "janky"; I really have no idea about
them. But I've seen a number of higher interest bank accounts and turned them
down because they were from unknown vendors.

As an example, I was pissed at Ally and needed a new vendor. I decided to try
Discover Bank, figuring they'd be good with a well established reputation like
Discover, and with the same interest rates as Ally. But the experience has
been decidedly worse. Slower deposits and transfers, for example.

Also worth noting that usually you shouldn't be carrying a lot in savings
anyway. Excess cash should be sitting in investments and doing work. So
savings accounts will only be carrying emergency funds et al. If you've got,
say, $12k in your account, an extra 0.4% is only going to give you a few extra
bucks a year.

Is a few extra bucks worth working with a lesser bank?

Or, to the focus of the original article, is a few extra bucks worth working
with an uninsured bank?

I advise extreme caution when it comes to savings accounts, which are
explicitly for "safe" money in a health financial portfolio.

~~~
pascalxus
Well, if you're saving very aggressively to buy a house in the near future, it
makes a lot of sense, especially in places where housing is extremely
expensive.

Slow deposits and transfers are not a problem at all. You only need to
transfer in or out maybe a few times per year at the very most.

i'm not sure what you mean with "janky"

------
megaman8
This is extremely concerning:

>> “I disagree with the statement that these funds are protected by SIPC,”
Stephen Harbeck, president and chief executive officer of SIPC

As a result, I will not be signing up for Robinhood, that's for sure. I get
the sense, It's not the place to park your money, if you're just trying to
save up without investing.

------
aakilfernandes
I guess it depends on how you read the statue.

we protect (money with a brokerage firm) that is used for the purchase of
securities

or

we protect money with a (brokerage firm that is used for the purchase of
securities)

Unfortunately, due to the nature of law, there's no way to get an answer on
this until it goes to the courts which will only happen if/when there's a
problem.

------
ajcodez
I bet the idea is to use the deposits to fund margin lending to offer 3%
interest rate. I remember the rate was like $10/m for $2000 margin which is 6%
per year. If it’s funding margin lending would it count as empty brokerage
account to get insured?

------
adrr
Behind the scenes, it is getting invested in a money market, tbills, or some
other investment. So why wouldn't it be covered? Robinhood is only putting a
checking account facade around this investment.

------
onetimemanytime
Initially the 3% can be paid by RobinHood investor money (they'll make it up
on volume, like Pets.com did shipping 50lbs bags). But tomorrow? Maybe offer a
x year guarantee

------
hunter23
Is the main issue that the product is marketing as a checking account? If
robinhood marketed this as an investment bank account would they comply?

------
peter303
I have had such an account at Fidelity for years. However they only pay lower
money market rates which are based on bonds less than 30 days.

~~~
whitepoplar
Fidelity CMA balances are swept into FDIC-insured bank accounts. One trick
with this account is that you can purchase Fidelity Money Market funds, which
are treated as cash, and which Fidelity will auto-liquidate as-needed to cover
debits, without intervention on your part. You can select any Fidelity Money
Market fund for this. SPRXX, for instance, currently pays 2.09%. Plus you get
a debit card that refunds any ATM fee in the world, free wire transfers, bill
pay, paper checks (if needed), and competent customer service that's available
24 hours per day.

------
rdlecler1
HN's value has really declined with the appearance of all the paywalls the
last couple of years where there's no simple workaround. I've stopped clicking
on WSJ, NYT, Bloomberg articles. Would be nice to just be able to filter them
out of the view.

~~~
sjroot
I've been using Outline.com when possible to get around this, but I agree.
Posts behind paywalls should be removed, or tagged and filterable.

------
jackconnor
It's Bloomberg reporting so they probably got it completely backwards, or made
it up, or misunderstood what was told to them. Not saying they're right or
wrong, i'm saying Bloomberg is a very unreliable news source, especially in
tech.

~~~
detaro
Just because the company financial news is about has an app doesn't make it
"tech". And here they're reporting direct, attributed statements, so it should
be easy for you to explain what they "didn't understand".

~~~
JJMcJ
One of my pet peeves is that certain internet based companies are reported as
"tech" and others aren't.

What's "tech" about Uber or AirBnb?

~~~
sjroot
I think it is more appropriate to call them a software company. They both make
software that facilitates real-world interactions.

I consider software companies to be "tech" companies, but alas.

