Many investors wonder whether the investment app Robinhood is good and safe for large investments. The short answer is that it depends on how large your investment is.
There are two questions at play here. The first is whether Robinhood is secure, and a legitimate financial service, and the second is whether it’s safe for biggest investments in the event that the service somehow went out of business.
Is Robinhood Safe?
By all accounts, Robin Hood appears to be doing quite well financially. It seems unlikely that the company would go out of business in the short term.
If it did, it’s likely that a rival brokerage would snap up its customers. Robinhood usually focuses on smaller investors, which would be less interesting to rival brokerages. In the unlikely event that Robinhood stopped operating, though, its users with larger balances would probably be the first ones targeted by rival brokerages.
Like all brokerages operating in the United States, Robinhood is subject to the same regulatory scrutiny as its bigger rivals. Even though the app feels new and cutting-edge, its still a brokerage, and is still regulated.
Robinhood’s Insurance
Even if Robinhood went bankrupt and no other brokerage stepped in to pick up the accounts of its investors, large or small, many large investors using Robin Hood would still be protected. That’s because Robinhood is a member of the SIPC, which insures the investments made in the platform.
This SIPC protection extends up to $500,000 per investor in most cases. (Cash balances are insured separately). In other words, unless your Robinhood account value exceeds $500,000, you wouldn’t lose any money in the event of a Robinhood bankruptcy. Even if another company didn’t step in to take over Robinhood’s accounts, the US Government would insure your holdings up to the $500k limit.
If you have more than $500,000 invested with Robinhood, the SIPC protection wouldn’t apply to the amount above $500k, however. Again, it’s unlikely that big investors would lose their money if Robinhood went bankrupt, because some competitor would probably take over those accounts. But it’s something to keep in mind if you plan to have a large investment of over $500,000 with Robinhood.
An important caveat
One crucial thing to keep in mind is that all of this applies to investments you make using the Robinhood platform. If you buy some Tesla stock on Robinhood for example, the SIPC would protect that investment up to $500,000 if Robinhood ever went under.
If you invest in Robin Hood itself as a company, however, if Robinhood went under or its stock value dropped, you could lose money on that. Of course, that would be true of any other investment you may. If you invest in a company and it doesn’t do well, the SIPC isn’t going to come in and bail you out!
Crypto is Different
It’s also important to keep in mind that SIPC protection applies only to cash and securities. Robinhood clearly says that crypto investments aren’t covered.
Thus if Robinhood went under, any crypto you had with them could be lost.
In summary, as long as you’re using Robinhood as an app user and your account balance does not exceed $500,000 in cash and securities, the app is most likely safe for you. If you’re buying crypto with Robinhood, your funds could be at risk.
This article is for informational purposes only and should not be construed as investment, tax or legal advice. Always consult a professional advisor for advice specific to your situation before making any major financial decisions, and never invest more than you can afford to lose.