Robinhood cuts margin interest to 2.5%
Fresh off its $65 million settlement with the SEC for misleading customers as to how it makes money, and in the wake of an action being brought against it in Massachusetts based on how it “gamifies” trading, online brokerage Robinhood is plowing forward in making leveraged trading easier for retail clients by announcing that it is lowering its annual margin interest rate from 5% to 2.5%, making it one of the lowest and most competitive rates in the industry.
Robinhood stated that it is driven by its mission to democratize finance for all. It started with removing barriers like commission fees (which forced nearly all its larger competitors such as E*Trade, Schwab and TD Ameritrade to do the same) and account minimums. The company said it continues to look for ways to lower the cost of investing services across the board––and inspiring others to do the same. By lowering its margin rate, Robinhood said it is taking another step in passing the most value back to its customers.
Margin investing is offered to eligible customers through Robinhood Gold, a suite of premium investing products including Nasdaq Level 2 market data and Morningstar Research Reports, for a fee of $5 a month. The first $1,000 of margin is included in the $5 monthly fee. After that, customers pay a flat 2.5% yearly interest rate on any amount used above $1,000. The company said its pricing is straightforward and the same for every eligible customer, regardless of their account size.
Robinhood said that margin can help investors take advantage of investing opportunities, and maximize their potential gains if the stock price goes up. The company admitted that margin isn’t for everyone, and involves the risk of greater losses.
Regarding some of the issues surrounding the company, Robinhood CEO and co-founder Vlad Tenev blogged yesterday that contrary to the hand-wringing about the “new investors” who joined the markets in 2020, more than 3.2 million people read Robinhood’s educational articles through Learn, with daily visits up by 260% percent since January 2020.
Tenev claimed that when things got tough and markets were volatile in 2020, Robinhood customers actually acted as a stabilizing force, citing a paper published by the National Bureau of Economic Research. He said that critics of this new generation of investors often come from backgrounds where they had easy access to a world that Robinhood’s customers have been excluded from.