The no-fee trading app Robinhood used by a lot of millennials announced yesterday that it will start offering checking and savings accounts with 3% interest rates. CNBC writes;

The 5-year-old company on Thursday unveiled “Robinhood Checking & Savings,” which offers checking and savings accounts with no fees and pays an interest rate roughly 30 times the national average. Customers will earn 3 percent annually on money in either accounts, paid out on a daily basis.

When having money in a savings or checking account it is important to know that the money is insured in case something happens to the company. The federal agency FDIC insures customers’ deposits up to $250,000 at banks in case something happens. Robinhood does not have FDIC insurance. It announced that it has insurance from the SIPC. USA Today explains;

Robinhood already was a broker-dealer member of the SIPC when it launched its savings and checking features, which are technically considered cash management accounts. Investment firms like Fidelity and Charles Schwab offer similar accounts.

“The insurance amount is the same and it allows us to offer this high rate,” said Baiju Bhatt, CEO and co-founder of Robinhood.

It appears though that according to SIPC Robinhood funds are not protected by the SIPC. Bloomberg writes after interviewing CEO OF SPIC;

“I disagree with the statement that these funds are protected by SIPC,” Stephen Harbeck, president and chief executive officer of SIPC, said in an interview Friday. “Had they called us, I would have told them what I just told you in that I have serious concerns about this. This has gigantic ramifications for the banking industry.”

“The statute that we administer says that we protect money with a brokerage firm that is used for the purchase of securities,” he added. “On Robinhood’s help page, it says that you don’t need to invest to use Robinhood checking and savings, that statement is wrong. If you deposit money for any other purpose, it is not protected.”

In another words, as a saver having money in a saving or checking account at Robinhood is not safe. One would think the company would look into these fundamental basis prior to launching the product.  Considering neither investors, users or savers know if the company is profitable, if things turn bad for the company and a lot of savers withdrawal their funds in a rapid pace, it appears there is no guarantee your money is guaranteed.