Robinhood CEO Exposes Big Banks’ Rip-Offs, Offers 5% Yield to Compete
Americans are increasingly becoming aware of how big banks are taking advantage of them and robbing them of their hard-earned money, according to Vlad Tenev, the CEO of Robinhood. In a bid to challenge traditional banks and their measly interest rates, Robinhood, the popular stock trading app, is now offering a 5 percent annual percentage yield on uninvested cash to its subscription members.
Tenev stated in an interview with CNN that traditional financial institutions have been generating significant amounts of revenue without sharing it with customers. He believes that customers are starting to realize this and are seeking alternatives. Robinhood sees this as an opportunity to rectify the situation and provide customers with a fairer deal.
Despite the Federal Reserve’s efforts to raise benchmark borrowing costs, the average savings account in the United States pays less than 0.6 percent, as revealed by a Bankrate survey. Tenev argues that traditional banks have a playbook of not passing down revenue from higher interest rates to customers. He believes that banks have taken for granted that customers are not savvy enough to realize when rates change and that they could be earning a higher risk-free return on their funds backed by the US government.
The American Bankers Association responded to Tenev’s claims, stating that recent surveys show many customers are satisfied with their banks. Jeff Sigmund, a spokesperson for the association, emphasized that banks of all sizes offer dependability, safety, convenience, and competitive prices. Sigmund also highlighted that Robinhood can only offer FDIC protection on some of its products because it partners with FDIC-insured banks. The Federal Deposit Insurance Corporation provides deposit insurance to depositors in US commercial banks and savings banks.
A DailyMail.com analysis earlier this year revealed that JPMorgan Chase, Wells Fargo, and Bank of America earned nearly $50 billion from higher interest payments in the second quarter of 2021, yet none of them have increased the yields on their savings accounts. JPMorgan Chase and Bank of America offer a meager 0.01 percent yield on their standard savings accounts, while Wells Fargo offers a slightly better 0.15 percent. In comparison, tech firms such as Apple and the Walmart-backed One offer significantly higher yields of 4.15 percent and 5 percent, respectively.
To compete with these low-interest rates, Robinhood has introduced a 5 percent yield for its new and existing customers who subscribe to Robinhood Gold, a service that costs $5 per month. The company will automatically move its premium customers’ funds into deposit accounts at a network of FDIC-covered banks, ensuring FDIC protection. Customers who do not sign up for Robinhood Gold will receive a more modest 1.5 percent return on their uninvested cash.
This move by Robinhood is part of its broader strategy to become more than just a retail trading platform for stocks and cryptocurrency. It now offers traditional and Roth retirement accounts and acquired a credit card startup earlier this year. Tenev emphasized that Robinhood is transforming into a full-service financial institution, with more than half of its revenue being generated by net interest income. The company sees a vast pool of assets in savings accounts that it can tap into, providing customers with better value and opportunities for higher returns.
It’s clear that Robinhood’s aggressive approach is disrupting the traditionally slow-moving banking sector. By challenging big banks’ predatory practices and offering more attractive yields, Robinhood is giving customers a compelling reason to consider alternatives. This development could compel traditional banks to reevaluate their approach and strive to provide customers with higher returns, thus fostering a more competitive and consumer-friendly financial landscape.
