I Regret Moving My Savings to Robinhood, Despite the Better Rates

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There are hidden pitfalls to moving cash savings to Robinhood. Find out how this top stock broker falls short in the banking space. [[{“value”:”

It’s no secret the Federal Reserve has hiked rates 11 times since spring 2022. Savings account yields at online banks and brokers have skyrocketed; at top banks, it’s common to see upwards of 4% return. But not everyone boarded the high-rate train.

Take Chime, my banking app of choice. It offers a 2% APY on savings deposits. Pre-pandemic, that was a big number. But in 2024, it’s half of what competitors offer. Frustrating. To chase high rates, I moved my savings to the online broker Robinhood. As a Gold member, I was entitled to returns upward of 4% on uninvested brokerage cash. I wanted in.

But Robinhood is a stock broker, not a bank. Despite the broker’s better savings rates, I quickly regretted moving my savings to Robinhood for a few reasons — and they had everything to do with Robinhood’s focus on brokering stock trades.

Robinhood has no checking account

Robinhood doesn’t offer a checking account. The closest thing is a “Spending” card that works like a prepaid debit card. To fund the card, you need to set up direct deposits or transfer money manually from your bank. I already had a card set up through Chime, so I found this useless.

I settled for leaving my Chime checking account open and only using Robinhood to store savings (and earn that high APY).

Moving savings to Robinhood was a pain

I opted into Robinhood’s Brokerage Cash Sweeps program to earn interest on Robinhood deposits. As a Robinhood Gold user, I earn 5% interest on uninvested cash, more than twice what I earned from my mobile banking app.

The problem: I had to transfer my Chime savings to my Robinhood account manually. My money no longer automatically moved from my checking to my savings account. I had to remember to transfer the money; often, I didn’t. I forgot, or I spent the money on something else instead. (It’s easier to save when you’re not thinking about it.) I saved less and less.

One solution that presented itself was to close my Chime account and set up direct deposits to my Robinhood brokerage account. But that idea died when I encountered an even bigger issue: the temptation to buy stocks with my cash savings.

The temptation to buy stocks with savings was strong

Whenever I opened my Robinhood app and saw my uninvested cash, I wondered how much money I could earn by investing it in the stock market. Sometimes, I did just that. On Robinhood, buying stocks is as easy as searching the stock ticker and clicking “Buy.”

Predictably, I spent some of that money on buying stocks. I found myself unable to resist the temptation to spend. As a result, my savings dwindled, leaving me vulnerable to financial emergencies and with less money to pay taxes.

I withdrew my savings from Robinhood

Enough was enough. I stopped sending money from my savings account to Robinhood. These days, I keep my brokerage money and savings accounts separate. It keeps me from overspending, and it’s easier to save — I just turn on Chime’s Automatic Savings feature.

There are better places to put your savings

While you can earn a decent rate on Robinhood, there are better places to put your savings. The trick is to keep your money in an account that encourages you to save — not spend.

Savings accounts are popular for folks saving for a near-term vacation or emergency fund. The best high-yield savings accounts offer returns in the 4% to 5% range, 10 times more than the average savings account APY. Plus, they’re FDIC-insured, so your deposits are safe.

If you’d like to lock in a high rate of return before the Federal Reserve potentially drops rates later this year, consider opening a certificate of deposit (CD). CDs lock in rates for the duration of their term, anywhere from six months to five years. The catch is you have to leave your money alone until the CD matures. Some folks get around this restriction by building CD ladders.

Money market accounts also offer generous interest rates. They don’t lock in rates like CDs, but returns are often equal to those provided by high-yield savings accounts, and they sometimes come with debit cards. The catch is they often require minimum deposits to earn the best rates.

You have options. When in doubt, keep things simple. Shop around for places to put your savings that charge zero fees, are easy to use, and offer high interest rates. It’ll give you the greatest opportunity to grow your savings fast.

These savings accounts are FDIC insured and could earn you 11x your bank

Many people are missing out on guaranteed returns as their money languishes in a big bank savings account earning next to no interest. Our picks of the best online savings accounts could earn you 11x the national average savings account rate. Click here to uncover the best-in-class accounts that landed a spot on our short list of the best savings accounts for 2024.

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