Stocks App Robinhood's Generous 'Checking & Savings' Sounds Like a Mess

Since its arrival on the financial tech scene five year ago, the stock trading app Robinhood has lived up to its name, seemingly delighting in disrupting the online stock trading game. Now, the startup’s vastly popular “no fee” policy has been extended to other financial services like checking and savings accounts.

Yesterday, Robinhood introduced “Robinhood Checking & Savings,” an online banking structure with no account minimums, no overdraft charges and no ATM fees. And there’s more: a three percent interest rate on both checking and savings accounts. Is this the future? Is this heaven? Is this a business suit full of mice whispering, “Come bank with us, millennials?”

There are some caveats. Robinhood’s services will be offered through its brokerage, and brokerages abide by a different set of regulations than banks. Unlike most bank accounts, Robinhood’s won’t be insured by the Federal Deposit Insurance Corporation; instead they’re supposed to be backed by Robinhood’s insurer, the Securities Investor Protection Corporation. Problem is, it doesn’t look like Robinhood cleared these new accounts before announcing them, and the SPIC’s head seems less than thrilled, according to a report by Axios’ Felix Salmon.

The promise of three percent interest for both checking and savings accounts, to be paid out daily to users has still been enough for them to line up tens of thousands of subscribers (one potential customer we spoke with said they were number 65,000 or so on the waitlist). Three percent is nearly 30 times the national average. Even amongst the higher paying online banks, where lack of storefront overhead generally translates to more lucrative interest rates for customers, Robinhood’s three percent interest rate tops its competitors, according to the latest statistics from Bankrate. The startup will instate a $0 minimum balance for both checking and savings accounts, according to their press release.

So how is a three percent interest rate and no-fee financially feasible? According to co-CEO Bhatt, the three percent interest rate was in part influenced by the rising rates set by the Federal Reserve. Those hikes affect all banks nationwide, so there’s a distinct possibility Robinhood’s three percent interest will soon be matched by other digital banking institutions themselves. Notably, they’ll have to compete with Goldman Sachs’ relatively nascent consumer banking operation, a mega-bank with plenty of resources to continue offering industry-standard interest rates (and, apparently, more regulatory scruples.)

While that’s a potentially risky business model, true to Silicon Valley, Bhatt told CNBC Robinhood is focusing on growth, rather than immediate profit.

This story has been updated to reflect Axios’ reporting of the SPIC’s comments.