Robinhood is launching high-interest, no-fee checking and savings accounts in its latest bid to ‘democratize America’s financial system’ — and it doesn't care about losing money day 1 (2024)

• Robinhood announced it will begin offering checking and savings accounts to customers.
• The accounts have an interest rate of 3%, an industry high, and feature no fees.
• The move is the next logical step for the company as it aims to 'democratize America's financial system,' according to co-CEO Baiju Bhatt.

Online brokerage Robinhood is taking another big step towards its goal of being the Amazon of financial services with a move that aims to help the fintech company carve away more business from big banks. And it doesn't care that it may lose money day one.

The trading app, which first made headlines five years ago when it launched its no-fee brokerage business, announced on Thursday it will begin offering checking and savings accounts to its six million customers.

The accounts will feature an industry-high 3% interest rate, which will be paid daily, and carry no fees or minimum deposits. Customers will receive a debit card issued through Mastercard that can be used at over 75,000 no-fee ATMs across the country.

The average US savings and checking account interest rates are 0.10%.and 0.08% respectively, according to data from Bankrate, which surveys 4,800 banks and credit unions in all 50 states. This year, Simple’s rate for checking accounts of 2.02% is the best among lenders while CIT Bank and Citizens Access rate of 2.25% is tops among savings accounts.

Baiju Bhatt, the company’s co-CEO and co-founder, said Robinhood plans to make money off the accounts via the interchange revenue from the debit card it will share with Mastercard and the yield from investing customers’ capital in treasuries and government-grade assets.

While offering interest rates significantly higher than industry standards might sound like a losing proposition, Bhatt is adamant the venture will eventually be in the black.

“We do believe that this will be a profitable business for us, but it doesn't need to be profitable on day one,” said Bhatt. “Over time we expect to have greater economies of scale, reduce our costs, incrementally increase the revenue that we make off the different lines of business and actually have this be a thriving and growing business for us.”

Adding checking and savings accounts to Robinhood has been nearly two years in the making, Bhatt said, and was a natural next step for Robinhood. The company's mission is to make financial services accessible to all people regardless of their income.

“How could we take our approach of dramatically reducing the cost of financial services and passing it back to customers, how could we make this work in other aspects of the industry?” Bhatt said in an interview. “We said this with a rather lofty goal in mind, that if we were successful, our mission would be to democratize America's financial system. We view this product as one that really connects the dots between where we started and where our company is going in the future.”

There will be a waitlist to get an account, Bhatt says, as was the case when the company began offering cryptocurrency trading at the beginning of the year. The first batch of cards will go out on December 18, Bhatt said, followed by a larger batch most likely issued the first week of January. The accounts will be just the beginning, he adds, as there is a full roadmap for 2019 of products built on top of the offering.

The announcement comes on the five-year anniversary of the company’s launch of its initial offering: zero-commission stock trading. In May, Robinhood closed its latest $363 million funding round that valued the company at $5.6 billion.

“The people that have a lot of money are not the ones that are actually paying these fees that are stuffing the banks’ coffers. It’s people that actually have less money,” Bhatt says. “For core, traditional banking services, it is actually more expensive for people that have less money and it is less expensive for the wealthier people, and we think that is pretty rotten. And we are building a product that really levels the playing field.”