Is Robinhood Safe?
Robinhood is a broker that needs little introduction. As one of the first brokers to offer the zero-commission pricing model, Robinhood created a ‘new wave’ of investors, favoring ease of access over the complex (and expensive) systems traditional brokers followed.
To date, millions of new accounts have been created at Robinhood. Despite its popularity, many still wonder if Robinhood is a scam.
Can Robinhood be trusted in 2024? Let’s find out.
Is Robinhood Legitimate?
Regulatory organizations play a crucial role in ensuring brokers keep business practices on the up and up. Looking at a broker’s registration and licensing from oversight agencies is a good first step when determining whether it is a safe place to invest your money.
FINRA (the Financial Industry Regulatory Authority) and SEC (the Securities and Exchange Commission) are
the two most prominent regulatory bodies. Robinhood is registered with both, and to maintain licensing, the broker must adhere to all the rules levied by the regulatory agencies.
While there are too many rules to mention here, we can summarize by saying that the rules are designed to keep brokers honest and customers safe.
Is Robinhood Insured?
In addition to licensing and adherence to regulatory authorities, the insurance a broker offers can also provide some peace of mind. SIPC and FDIC are common amongst brokers, and they can only become insured if business practices are up to par.
Robinhood provides SIPC and FDIC coverage to all its investors.
SIPC insurance is one of the many licensing requirements (which is why all U.S. brokers provide it), but Robinhood offers an additional layer of protection that is not required.
Regular SIPC covers up to $500,000 for securities, with half of that available for cash balances. The additional layer, also known as excess of SIPC, is similar but the amounts covered are expanded significantly. Excess of SIPC covers as much as $10 million for securities, with $1.5 million available for cash balances.
SIPC is in place to protect investors from broker-related harm. If Robinhood defaulted for any reason, customer accounts would be protected.
Robinhood also provides FDIC insurance for members using the broker’s Cash Management and Spending accounts. With cash management comes cash sweep into program banks, and that money is insured up to $1.25 million.
Robinhood Promotion
1% IRA match and up to $200 FREE stock at Robinhood.
Visit Robinhood Website
Is Robinhood Secured?
Guarantees from a broker, the technology it uses, and its security practices are also important when assessing broker quality.
Robinhood has a company policy that guarantees the return of any lost value in an account if the said value was lost due to unauthorized activity. Robinhood will reimburse you for any losses if your account is compromised, but you will need to prove that any problematic transactions did not come from you.
In addition to its assurances, Robinhood maintains a secure platform that users can depend on. You’ll see features like advanced military-grade AES encryption protocols and 2-Factor Authentication to help investor accounts remain protected.
Is Robinhood Good? (Review)
By now, it should be clear that Robinhood is a safe broker to do business with. ‘Safe’ doesn’t always equal ‘good,’ however. There are several things to consider before deciding if a broker is right for you.
Is Robinhood a good broker to use? The most annoying answer is that it depends. Robinhood is a fantastic broker for some situations, but some may find it lacking in some areas.
Keep reading to see if Robinhood is a good broker for your needs and expectations.
Most Notable Features
Many features help Robinhood stand out from the crowd. The broker continually builds on its strong base by adding new features and services.
One example is the move into being a self-clearing broker. Another is the addition of cryptocurrency wallets, allowing investors to take part in a more versatile crypto trading environment.
Here are some of the most notable features:
- Stock lending
- Fractional shares
- Instant deposits
- Zero-commissions
- Advanced options trading
- Web3 crypto wallets with no network fees
- Crypto gifting
- IRA with 1% Match
- IPO access
- 5% interest on uninvested cash
- Premium service package (Robinhood gold)
Robinhood Account Types
Robinhood offers a limited selection of account types, but there are some attractive options.
Investors can open an individual margin account (Robinhood Instant) or a cash account. There is also a cash management account and an attractive IRA offering.
Robinhood Instant Account
Robinhood Instant is the default brokerage account that everyone receives when opening an account with the broker. The ‘Instant’ in the name refers to the ability to trade with new deposits immediately. Instant deposits are made possible with margin, but customers do not need to pay margin interest on the ‘loan.’
With Robinhood’s margin account, you can take advantage of most of Robinhood’s features, like advanced options trading (if approved for it), borrowing for personal spending, borrowing to increase your buying power, and using unsettled funds.
Robinhood Cash Account
For some, a cash account is more suitable. To use Robinhood’s cash account, traders need to downgrade their account. New deposits and trading transactions take more time to settle, and there is no Level 3 options trading. That said, the PDT rule does not affect cash accounts.
Cash Management & Spending Accounts
In addition to Robinhood’s brokerage accounts, there is a Spending Account (Sutton Bank) that gives investors a debit card and all the benefits of a checking account. With the Spending account, you can use digital payment systems and a physical card to spend your money as you see fit.
The Spending Account comes with a
cashback program, free ATM access, recurring investments, and direct deposits.
IRA
The newest account type at Robinhood is the IRA Match account. Robinhood’s IRA Match allows investors
to put money away in a tax-advantaged account for the long term, just like any other IRA. However,
Robinhood matches each qualified contribution by 1% without needing an employer 401(k) arrangement.
The contribution limits for IRA Match are $6,000 or $7,000 per year, depending on the investor’s age (under or over 50).
Available Securities
Robinhood offers a good selection of securities, but some might find the list of available securities restrictive.
You can trade U.S. exchange-listed stocks, Indices, ETFs, and cryptocurrencies at Robinhood. Advanced options strategies are also supported. You won’t find mutual funds, Forex, futures, and commodities.
Stocks, ETFs, and Options
Trading stocks and ETFs at Robinhood is straightforward. The ease of investing is one of the things
that make Robinhood as popular as it is. Stocks and ETFs can be purchased for as little as $1, and
transaction fees are limited to fractions of a penny exchange regulatory fees.
Robinhood’s options trading experience is also quite simple. Investors can combine options contracts to create various multi-leg options positions. 0-DTE options trading can also be enabled.
Cryptocurrencies
Cryptocurrency trading at Robinhood is surprisingly good. With zero-commission transactions and a dedicated crypto wallet, traders can take advantage of the crypto space without the restrictions many other brokers have.
You can trade Bitcoin (BTC), Ethereum (ETH), USD Coin (USDC), Cardano (ADA), and many others from the web or mobile apps. And, with Robinhood now providing a crypto wallet, you can transfer digital assets in and out of your Robinhood account without waiting for funds to transfer and settle.
Bonuses and Promotional Content
The main bonus type from Robinhood is free stocks. There are two ways to access Robinhood’s free stock
program. One is to open an account with the broker, and the other is to refer new investors to the firm.
No matter how you get them, the free stocks come as fractional shares valued between $5 and $200. When you or your referral sign up for a new account, you and your referral get the chance to select a stock from one of the most prominent companies in the U.S.
For the referral bonus, you can invite as many people as you want, but the overall value of any bonuses paid will be at maximum $1,500 in a single year.
Robinhood Promotion
1% IRA match and up to $200 FREE stock at Robinhood.
Visit Robinhood Website
Subscription-based Upgrades
Robinhood offers plenty of quality services at its base level, but an upgrade brings even more features. To access them, you’ll need to sign up for Robinhood’s premium account, Robinhood Gold.
A monthly $5 subscription to Robinhood Gold unlocks advanced charting, (much) more significant instant deposits, a better cash sweep program, and more. If you are still determining if Robinhood Gold features are right for you, you can try them out for free using the 30-day trial.
Robinhood Gold Features
Cash sweep in Robinhood Gold accounts earns a 5% APY (23 times the national average, according to the broker). Customers who are not members of the premium subscription earn 1.5% APY on uninvested cash.
The size of the Instant Deposit increases significantly for Gold members. There are several factors (including account size) that Robinhood considers when determining the size of the ‘larger’ instant deposits. The maximum is $50,000.
Other improvements include better trading tools. For example, investors get access to research data from Morningstar via analyst reports and Nasdaq Level II data. Advanced charting also becomes available.
Margin rates for trading are reduced to 8% instead of the standard 12%. There is also the option to toggle margin features on and off.
While some may want to avoid paying a monthly subscription to their broker, Robinhood Gold is a big step up from the standard accounts.
Costs and Fees
As a zero-commission broker, it is not uncommon to hear people say that Robinhood is free. Mostly, they are correct, but a quick look at Robinhood’s fee schedule shows that there are some costs associated with investing at Robinhood.
The most common fees you will encounter include money movement, regulatory, margin, and service fees.
For money movement, you’ll pay $25 for returned checks, $100 for outgoing ACATS transfers, $20 for domestic overnight mail, and a 1.5% charge on debit card funding and withdrawals.
The margin rate for non-Robinhood Gold members is 12%, but that is reduced to 8% for members. As a reminder, Robinhood Gold costs $5 per month.
Robinhood Pros
Robinhood has many positive qualities but could do better in some areas. Here are the most significant pros and cons.
- Mobile-friendly broker makes investing easy
- Simplified (some say game-like) approach to investing
- Zero-commission pricing structure makes investing ‘cheap.’
- Cryptocurrency access with a crypto wallet
- Cash management features are good
- Robinhood is now a self-clearing broker
- Robinhood’s premium account provides many advanced tools
Robinhood Cons
- Lacks a dedicated trading platform
- Some may be uncomfortable with the Payment for Order Flow business plan
- Some popular investment vehicles are not available
Awards
Robinhood Recommendations
We recommend Robinhood to investors looking for a simple approach to investing that doesn’t cut corners where securities and services are concerned. Despite the simplicity of Robinhood’s technology, there are many good features to take advantage of.
Robinhood allows you to spend cash directly from your investment account, and instant deposits make it easy to take advantage of opportunities quickly. Additionally, features like advanced options trading help you create positions that take advantage of any market condition.
We do not recommend Robinhood for those who disagree with Payment for Order Flow practices. Traders looking for professional trading software would also be advised to look at alternatives. Additionally, anyone looking for custodial accounts, futures and Forex, and foreign market access would do better at a different broker.
Robinhood Incentive
1% IRA match and up to $200 FREE stock at Robinhood.
Visit Robinhood Website
Ben Wright is an investor, a trader, an educator, and something of an explorer. He spends his days in the markets when he is not teaching or spending time with his family. Ben writes about stockbrokers, markets, investment vehicles, promotional offers, and tools that help investors make the most of their time in the markets.
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