Robinhood, the stock trading app known for the GameStop craze, is making efforts to attract customers who are dissatisfied with traditional banks that offer low interest rates on savings. To entice deposits, Robinhood is increasing its interest rates and will now offer a 5% annual percentage yield (APY) on uninvested cash to subscription customers. This rate is significantly higher than what traditional banks offer. Robinhood's goal is to expand beyond being just a retail trading platform and boost its share price, which has fallen since its IPO in 2021. Despite the Federal Reserve raising interest rates to combat inflation, the average savings account pays less than 0.6%. Robinhood CEO Vlad Tenev believes that traditional banks have taken advantage of customers' lack of awareness about changing interest rates and their ability to generate higher returns. Robinhood's 5% rate applies to customers of its subscription service, Robinhood Gold, while other customers can earn a more modest 1.5% on uninvested cash. The company is transforming into a full-service financial institution, offering high-yield deposit accounts, retirement accounts, and even entering the credit card business. This diversification strategy aims to reduce Robinhood's reliance on retail trading and make it less vulnerable to market fluctuations. Since its IPO, Robinhood's active user accounts have decreased, and its stock price has fallen significantly. However, Tenev remains optimistic about the company's future and plans to expand its offerings and improve its web platform.
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