FinTech News
Robinhood Introduces Lowered Margin Interest Rates
The popular investing platform Robinhood has announced new margin rates as it looks to attract advanced traders.
About the changes:
Robinhood is rolling out new, lowered margin rates. Now, the rates that customers pay will vary by their total margin balance, with these rates ranging from 5.7% to 6.75%. These tiers breakdown like this:
- Up to $50k: 6.75%
- $50k to $100k: 6.55%
- $100k to $1 million: 6.25%
- $1 million and up to $10 million: 6%
- $10 million to $50 million: 5.95%
- Above $50 million: 5.7%
This move comes as Robinhood touts that it now offers more tools for advanced traders. In recent years, the company has added 24 Hour Market trading, advanced charts, stock lending, and other features to its platform.
In order to trade on margin, customers will first need to be approved. However, once qualified, these balanced-based rates will automatically apply. Users can also initiate a margin balance transfer from another brokerage in order to claim these new rates.
Prior to this new fee structure, Robinhood’s standard margin rate was 12% while those who subscribed to Robinhood Gold could receive a discounted 8% rate. Meanwhile, according to Robinhood (based on publically stated data), E*Trade, Charles Schwab, and Interactive Brokers currently have introductory margin rates of 14.2%, 13.75%, and 7.83%, respectively.
Robinhood Gold members will continue to get their first $1,000 of margin at no interest. Additionally, Gold will be adding its 1% unlimited deposit boost and the company’s member-exclusive 3% cashback Robinhood Gold card is expected to launch soon.
What they’re saying:
In a blog post about the updates, Robinhood’s Chief Brokerage Officer Steve Quirk said, “We’re always looking to upend the status quo on behalf of our customers, Whether someone has a balance of a few thousand dollars or millions, they automatically have access to the lowest margin rates among leading brokerages with absolutely no haggling required.”
My thoughts:
In most cases, when companies declare that they’re “looking to upend the status quo,” expectations of their lofty goals are to be taken with a grain of salt. But, in the case of Robinhood, there’s a very real chance that their new margin rates could indeed set off a sector-wide shift. We’ve already seen the impact the app has had. In 2019 several retail brokerages dropped their commission fees due in very large part to Robinhood’s popularity and competition. Having said that, this doesn’t mean that other firms will follow the app’s lead overnight. Also, it remains to be seen if courting investors with substantial margin accounts will work for Robinhood (especially given some of the company’s past missteps).
As for customers of Robinhood, the lowered fees are of course a good thing. At the same time, I suspect that margin trading is not appropriate for most users. Therefore, be sure to do your research and consider the risks before taking the company up on its new margin offers.
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