EMAILED ON December 14, 2018 BY Conor Grant

With its 3% account, crafty Robinhood steals business from banks and gives it to… itself

Mobile investment platform Robinhood announced yesterday that it will offer digital checking accounts that yield 3% interest, with debit cards shipping in January 2019. 

Attracted by the high interest rates (normal bank accounts yield 0.06%), zero fees, and more ATMs than the 5 largest traditional banks combined, more than 430k people signed up for the waiting list on the first day.

Digital checking accounts are so hot right now

Other fintech startups including Acorns, SoFi, and Square have recently rolled out their own digital checking accounts (complete with debit cards).

In response, traditional banks mimicked the juiciest features of these ‘neo-banks’ (free-peer to peer payment, etc.), causing fintech startups to roll out new features to stand out in a crowded field. 

So, who is Robinhood stealing from to offer 3%?

The reason why Robinhood is able to offer better rates than other bank accounts is simple: Robinhood’s accounts aren’t bank accounts. Instead, they are technically money market funds (stable mutual funds that yield more than bank accounts). 

With US interest rates at their highest point since the 2008 recession, Robinhood will invest in US Treasury bonds to make its returns (although if the Fed slashes interest rates, it may have to lower its rates).

So even though Robinhood’s products are more convenient than traditional bank accounts, Robinhood’s most innovative feature isn’t their tech — it’s their marketing.