Is invest your money in Robinhood shares a smart move? Can you keep your funds insured with this company? Do you know which method of insurance does Robinhood follow for your funds’ security?
To know this in details, you need first to understand the process of FDIC Insurance. And in this article, you will learn how banks keep their account FDIC insured and why. Further, we will give you information about whether Robinhood accounts are FDIC insured or not.
What Does “FDIC Insured” Mean?
FDIC stands for Federal Deposit Insurance Corporation. This corporation is working since 1933 after the Bank of America’s big failure in the 1920s. These financial crises left the worst impact on many people. So, the government developed advanced strategies to prevent economic collapse.
The primary way to protect all depositors is if they deposit their funds in insured accounts. FDIC provides the facility to ensure depositors, on depositing cash up to $250,000 in their accounts. FDIC covers checking and saving accounts. Moreover, the money market deposit accounts. However, it does not include any mutual funds. It also does not include bonds, stock, securities, or certificates.
What Does “SIPC Insured” Mean?
The nonprofit Securities Investor Protection Corporation (SIPC) works similar to FDIC. However, it works oppositely. SIPC insures brokerage firms to protect the depositors. SIPC protects from any unauthorized access or theft attack on your account.
However, SIPC does not cover any investment losses or worthless shares. SIPC provides the facility to ensure depositors, on depositing cash up to $500,000 in their accounts. It provides coverage of up to $250,000 per customer.
What accounts are not insured by the FDIC?
Unfortunately, Robinhood deals with mutual funds so it cannot use the FDIC insurance plan. Keeping the funds secure is essential. When the accounts are FDIC insured, depositors do not take any risk while making a significant investment.
Thus, to keep the depositors’ funds safe, Robinhood adopted the SIPC insurance plan. It recently announced new checking and savings account products for its customers, which provide a 3% interest on the investment.
However, these checking and saving accounts are not FDIC insured. Recently a spokesperson of Robinhood said that SIPS protects the cash in Robinhoods’ checking and savings accounts. The spokesperson further informed that SIPC covers up to $250,000 for the deposit of $500,000.
Moreover, SIPC took quick action for the above statement. It is because the statement was confusing the depositors. All investors should be familiar with the coverage plans of FDIC and SIPC.
- FDIC covers checking and savings accounts
- SIPC covers mutual funds, bonds, stocks, and securities
In response, the Head of SIPC said that “Robinhood spokesperson is misinterpreting the protections it provides.” With this statement, Robinhood came on target. Everyone got confused about whether their funds are insured with Robinhood or not. If you are searching for the answer, you need to have a look at what Harbeck explained to the investors.
Herbeck told depositors that big brokerages don’t have banks. It is because they deal with mutual funds. However, some big brokerages put customers’ cast in interest-bearing accounts. The money, which depositors invest in mutual funds or stocks, is swept to money market accounts.
In this instance, the big brokerages follow the spirit of the SIPC rule. In the Robinhood case, the company appears to be investing customers’ cast in various securities of its own choice.
This matter of confusion raised a lot of questions on the security and privacy policies of Robinhood. Resultantly it may also leave a negative impact on its share value. With such an analysis, the answer to our main question is “NO.” Robinhood accounts are not FDIC insured. You can find more related information about is Robinhood safe for investors here.