Source: Robinhood

Robinhood is giving banking another shot. Ten months after the failed announcement of a checking and savings account, the free stock-trading start-up announced a cash management account with a 2.05% interest rate. The APY is more than twenty times higher than the national average for savings accounts, according to Bankrate.com. In December, Robinhood said it would offer zero-fee checking and savings accounts with a 3% interest rate alongside its brokerage accounts. The move was seen as a shot across the bow of traditional banks. But the product saw swift pushback from regulators who questioned the SIPC insurance it was promising, which is meant for brokerage accounts — not for savings products. A day later, Robinhood said they would re-brand and re-name the product after the "confusion." "Over the past year, we pressed the reset button and started building this from scratch," CEO Baiju Bhatt told CNBC in a phone interview. "We've spent a lot of time and energy growing our business, and hired an all-star cast of people with financial services and risk compliance backgrounds." In the past year, Robinhood has hired Amazon veteran Jason Warnick as its first-ever chief financial officer and Gretchen Howard, a former partner at Alphabet's growth equity arm, Capital G, as chief operating officer. On Monday, the company announced that former SEC commissioner Dan Gallagher will join Robinhood's Board of Directors. The company also brought in a V.P. of risk and compliance, who along with other new hires has been working "around the clock with counter parties," including program banks and regulators, "to make sure that this program is thoroughly vetted," according to V.P. of product, Josh Elman.

Insured up to $1.25 million

Bhatt, who founded Robinhood with co-CEO Vlad Tenev in 2013, said this is an entirely new product and there is "no overlap" between cash management and the checking and savings product. Those who signed up on the wait list in December, for example, will have to sign up again for the new accounts. These cash management accounts have similar characteristics to savings accounts. They "sweep" customers money from a brokerage account into various FDIC-insured bank accounts. Because these firms deposit the money across multiple banks, the insurance can be higher than the standard $250,000 offered per bank. In Robinhood's case, accounts are insured up to $1.25 million.

Robinhood said its partners include Goldman Sachs, HSBC Bank, Wells Fargo Bank, Citibank, Bank of Baroda and U.S. Bank. The 2.05% interest rate is significantly higher than the national average, but could still "fluctuate with market conditions" like the Fed funds rate, according to Josh Elman, Robinhood's VP of product. The company was valued at $7.6 billion after closing its most recent, late-stage funding round in July. Its high-yield product was the first of its kind for a fintech company when it was first unveiled in December. But in the past year, SoFi, Betterment, Wealthfront and CreditKarma have all launched similar FDIC-insured, high-yield accounts. Most of these fintech companies don't have access to their own FDIC insurance that would protect customers' accounts in the event of a financial crisis. Partnering with banks is an increasingly popular arrangement for start-ups that offer financial services, but aren't regulated as banks.

Growing pressure