Robinhood’s no-fee, 3% interest checking and savings accounts might have been too good to be true.
The financial technology startup known for its stock trading app and cryptocurrency exchange introduced the cash management option that seemed to casual consumers to replace traditional bank accounts last week.
That quickly prompted questions about whether the accounts would protect consumers’ money.
“We’re excited and humbled by the response to yesterday’s announcement of Robinhood’s cash management program launching in 2019,” Robinhood’s co-founders wrote in a blog post Friday.
“However, we realize the announcement may have caused some confusion.” The issue at hand was the difference between a brokerage account and a bank account, and Securities Investor Protection Corp insurance and Federal Deposit Insurance Corporation Insurance.
Bank accounts are protected by the FDIC, while brokerage accounts-meant for investors to hold cash until it can be invested in securities-are covered by the SIPC. Robinhood’s accounts were brokerage accounts, and any money consumers put in those accounts that they didn’t intend to invest in securities might not have been covered by the SIPC. Stephen Harbeck, head of the SIPC, told CNBC that the startup had not contacted his office or the Securities and Exchange Commission before announcing the launch of their program.
Robinhood said on Friday that it would “Re-vamp” the program.