If you’re an investor and asking, “Is Robinhood FDIC insured?” the answer is yes. Robinhood revolutionized stock buying and selling by introducing commission-free trading. The feature made Robinhood one of the most popular online brokerages used by millions of users.
According to Statista, Robinhood’s Q2 2022 user numbers were 22.9 million active users. Robinhood users are guaranteed protection in the form of FDIC insurance. Moreover, Robinhood is a FINRA (Financial Industry Regulatory Authority) member, a private regulatory organization that regulates exchange markets and brokerage companies like Robinhood.
FINRA membership and FDIC insurance provide a sense of security for Robinhoods’ users. How so? Read more about FDIC insurance and how Robinhood users benefit from it.
|FIDC Insurance||SIPC Insurance|
|Coverage from $250,000 to $1.25 million.||Coverage for up to $500,000, including $250,000 for cash balances|
|FIDC insurance limits $250,000 per bank.||“Excess of SIPC” coverage when SIPC limits are exhausted ($ 50 million for securities and $1.9 million for cash balances).|
|Only for checking and savings accounts, excluding cryptocurrencies.||Valid for all securities and cash.|
Is Robinhood FDIC Insured?
Yes, Robinhood is FDIC insured. FDIC is short for Federal Deposit Insurance Corporation, a United States government corporation protecting Americans against commercial bank failures. FDIC aimed to “restore trust in the American banking system during the Great Depression,” according to the at-the-time President Franklin D. Roosevelt.
But in Robinhood’s case, there’s a catch. Namely, Robinhood isn’t a commercial bank. So how is Robinhood FDIC insured? It all concerns the simple fact that Robinhood works with several commercial banks. The role of these banks is to hold investor funds until they decide to withdraw them. So the funds are FDIC insured while in the “possession” of these banks.
Robinhood coins this practice as a “cash sweep program.” The program is part of Robinhood Cash Management, a feature offered through your brokerage account which gives you access to a Sutton Bank debit card. Much like any other debit card, you can use the Sutton Bank debit card to pay for anything you would with a standard bank-issued debit card.
However, Cash Management has undergone several changes, the most notable being the FDIC insurance coverage going from $1.25 million to $250k. So what does this mean?
How Much of Your Money Is FDIC Protected?
As of the current time of writing, FDIC insurance will cover $250,000 per program bank (a total of $1.25 million) if you have cash in your Robinhood spending account. Your spending account also comes with a 0.5% APY on cash holdings.
But as per Robinhood, “It’s your responsibility to monitor your balance not to exceed the maximum FDIC insurance.” The insurance covers balances excluding cryptocurrency holdings.
Is Robinhood SIPC Insured?
In addition to FDIC insurance, Robinhood is SIPC insured. SIPC, or Securities Investor Protection Corporation, is a brokerage-side coverage. It applies to all your assets, including cryptocurrencies, but differs from FDIC.
SIPC doesn’t protect your assets through loss of value, meaning you are not eligible for protection if your investments fail. Most notably, SIPC insurance kicks in if losses occur due to Robinhood wrongdoings. For example, if Robinhood goes bankrupt.
SIPC insurance covers up to $500,000 and up to half of that value, $250,000, for cash balances. There’s also “Excess of SIPC” insurance. This type of insurance kicks in after the maximum SIPC coverage has been surpassed. Excess of SIPC grants Robinhood users additional coverage protection – $10 million for securities and $1.5 million for cash balances.
Robinhood protects your money by offering FDIC and SIPC coverage. Regarding FDIC coverage, Robinhood users are eligible for insurance of up to $1.25 million and $500,000 for SIPC insurance (including $250,000 for cash balances). However, FDIC coverage doesn’t apply to cryptocurrencies.
The added protection measures make Robinhood one of the more reliable online brokerages millions of investors use. Before creating a Robinhood account, read the terms of service to get accustomed to FDIC and SIPC coverage.
Your money is safe in Robinhood as they are a member of the Securities Investor Protection Corporation, which protects against loss of up to $500,000 for securities and $250,000 for cash balances. Also, Robinhood is FDIC-insured, meaning users are eligible for insurance of up to $1.25 million.
FDIC primarily protects your checking and savings accounts, while SIPC protects your assets in a brokerage account. Robinhood offers both types of accounts. While FDIC and SIPC are different, they essentially protect your money.
No, FDIC protection doesn’t apply to stock investments.
No, FDIC insurance doesn’t protect Bitcoin or other cryptocurrency investments on Robinhood.