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As of February 2023, Robinhood’s Brokerage Sweep Program guarantees its users 4.15% APY (for those who pay $5 a month for Robinhood Gold). Robinhood is sweeping the cash to banks. Do those banks offer accounts with interest rates this high? The best savings accounts I can find are below 4% APY. Is this a money market account?

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    Banks usually offer higher rates to customers who keep (much) larger amounts of money with them.
    – RonJohn
    Feb 15, 2023 at 10:27
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    The highest rate on bankrate.com today for a savings account is 4.45%, not hard to imagine that Robinhood can get this. Feb 15, 2023 at 22:08
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    After a decade of historically low rates, it takes some time to mentally adjust that we are now in a world where the risk-free rate of return is actually significant.
    – Chuu
    Feb 15, 2023 at 22:25
  • Flabbergasted... used to seeing 0.1% rates on savings accounts.
    – erickson
    Feb 16, 2023 at 22:08

3 Answers 3

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I opened an 11-month CD yesterday at 5% with Capital One, and rates were over 4% on all longer terms. If individuals have fixed rate options >4% then it makes sense that there are some variable rate options >4% too. A business with large amounts of cash can get more favorable rates than most individuals. Robinhood can reduce/eliminate margin on the interest they pay out vs receive and still come out ahead due to the $5/month fee.

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Even if they're not really taking any risk, the one-month US treasury yield is currently around 4.6%. I think banks can treat these as effectively-cash and it's trivial to buy and sell them, so it should be relatively easy for them to make a profit if they're only paying out 4.15% of that.

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    and: this is entirely different to how it was 2 years ago, when a whole lot of people signed up for Robinhood and learned about the markets.
    – user253751
    Feb 16, 2023 at 14:23
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It's really not that impressive as it's comparable to money market funds offered by other brokers. For example, Fidelity's SPAXX shows a 7-day yield of 4.2%.

There's also nothing guaranteed about the 4.15%.

Per the link you included:

Interest is earned on uninvested cash swept from your brokerage account to program banks. Program banks pay interest on your swept cash, minus any fees paid to Robinhood. As of February 3, 2023, the Annual Percentage Yield (APY) that you will receive is 1.5%, or 4.15% for Gold customers. The APY might change at any time at the program banks' discretion. Additionally, any fees Robinhood receives may vary and is subject to change. Neither Robinhood Financial LLC nor any of its affiliates are banks.

The real question is why customers accept below-market interest rates, when HY savings accounts, CDs, and other no/low-risk options are available.

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    Regarding your parting question, it's because you can't trade in those accounts. Active traders frequently have cash in their brokerage accounts and it's not practical to frequently deposit into/withdraw from a brokerage account. Offering a competitive interest rate on cash in a brokerage account could be compelling for some people.
    – Hart CO
    Feb 16, 2023 at 1:40
  • @HartCO it was meant as a comment on the low savings account rates offered by large consumer banks, which make Robinhood's cash sweep rate look exceptional when it's not... I can see how my comment was confusing though, thanks for clarifying.
    – 0xFEE1DEAD
    Feb 16, 2023 at 3:14
  • You should probably be clear about what you mean by "not guaranteed". Robinhood is guaranteeing that rate for the short term, and the cash is guaranteed to be there with FDIC insurance (up to the limits). The thing they're not guaranteeing is that they won't change the rate going forward. I just think it's important since an FDIC-insured account with a stated interest rate is very different from a non-insured money market fund. I think this also clarifies why people accept this rate, 4.15% for high-liquidity and zero risk is quite good! And if they drop the rate you can move your money. Feb 16, 2023 at 22:46

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