No, Robinhood isn’t a member of the Federal Deposit Insurance Company or FDIC. The FDIC wouldn’t protect its customers if Robinhood went bankrupt. The FDIC is a semi-governmental institution that insures bank deposits up to a certain limit. If a bank goes out of business the FDIC steps in to make sure that the bank’s customers don’t lose their money.
Robinhood is a brokerage, not a bank. Therefore, it’s not covered by the FDIC. Still, if Robinhood goes bankrupt, investors who use the platform to buy stocks, bonds and other securities should not be at risk of losing their money.
Why? Robinhood is a member of the SIPC. The SIPC is very much like the FDIC, but instead of insuring banks, it insures brokerages. If a broker like Robinhood goes under (and there’s no indication the company is in any financial trouble, by the way), the SIPC steps in to make its customers whole.
One important caveat: Robinhood is itself a publicly traded company. SIPC protection applies to customers of Robinhood who use the app to invest in other securities.
But it doesn’t apply to Robinhood’s own investors. If you invest in Robinhood’s own stock and it goes under, you’re likely on your own. But if you use Robinhood as a customer and invest in other securities through the app, those investments should be protected by the SIPC.
Basically, you’re on the hook for your own investment decisions. But you’re not on the hook if a broker goes out of business (again, up to certain limits).
Crypto at Risk
It’s also important to remember that federal insurance applies only to cash and securities. Any crypto you hold with Robinhood could be at risk in the event of a bankruptcy.
Robinhood’s Cash Management
There’s one other important thing to note about Robinhood and the FDIC. While Robinhood isn’t an FDIC member, the company offers Cash Management for its customers uninvested cash. To provide this service, Robinhood works with external banks, since it’s not a bank itself.
Its partner banks are FDIC members. According to Robinhood, “Through Cash Management, cash deposited at these banks is eligible for FDIC insurance up to a total maximum of $1.25 million (up to $250,000 per program bank, inclusive of deposits you may already hold at the bank in the same ownership capacity).”
So while Robinhood may not be an FDIC member itself, its SIPC insurance should protect your securities investments held with Robinhood if it goes bankrupt, and its member banks’ FDIC insurance should protect any cash you have in your account. Crypto isn’t protected.
This article is not intended to provide financial advice. Consult with a professional regarding any financial or investment decisions.