Conventional banking licenses can be expensive and that can prevent startups from venturing into the banking business. In addition to the higher barrier of entry, there are also strict government regulations that they must contend with. That’s another aspect that deters startups from this industry.
However, neobank or challenger bank startups have found a way around this. They’re not sanctioned banks that hold a banking license, but they can provide accounts and investment products. They do that by essentially acting as a broker and working with a full-fledged bank to deliver their services.
A cash management account is the core service that neobanks provide. It’s a kind of cash account that combines the best features of savings, checking, and investment accounts under one umbrella. Customers also get a debit card for easy access to their funds.
These non-bank financial service providers can provide interest rates on accounts that are, in some cases, higher than what some conventional banks provide on their savings account.
This is largely because neobanks operate on a branchless banking model. They have significantly lower overheads compared to traditional banks that have to maintain physical branches that the staff that goes along with them.
Since customers get the best features of multiple accounts in one single product, it’s easier for them since they have fewer accounts to manage. Since the funds are deposited with a sanctioned partner bank, customers also get FDIC insurance on their deposits.
Robinhood Debit Card
Robinhood is best known as the company that has made it easier for people to invest in financial markets. It also offers a Cash Management Account that comes with its own debit card.
Customers get the benefit of earning interest on their uninvested funds kept in the account. Previously, the uninvested funds would remain in the brokerage account and wouldn’t earn interest.
Opening a Robinhood Cash Management Account is very simple. If you already have a brokerage account, simply upgrade to Cash Management in the app for free.
Having the account provides customers with more options for funding their brokerage account. They can link a bank account, set up direct deposit, or use their ACH account and routing number for transfers.
Full-fledged investment platform
Robinhood customers get access to a full-fledged investment platform that can be used to invest in over 5,000 stocks. This includes most US equities and exchange-traded funds in addition to derivative products like options.
Customers are also allowed to make options trades and access over 650 global stocks through American Depositary Receipts. All customers with a cash management account get access to the investment platform as Robinhood has made the brokerage account mandatory.
Customers don’t have to worry about overdraft fees. The Robinhood Debit Card automatically prevents overdrafts by default.
Transactions that will make you go negative if there’s not enough cash available in the account are automatically declined. There’s no charge for having a transaction declined due to insufficient funds, either.
No card replacement fees
Forgot your card at the coffee shop or lost it on the commute? It happens to the best of us. Most conventional banks tend to charge their customers for replacement debit cards.
Robinhood doesn’t. If a Robinhood debit card is lost, stolen, or damaged, the company will mail a new card to the customer free of charge.
Lower comparative APY
For an account that incentivizes brokerage customers to park their unused cash, the APY or interest offered on the deposits is lower compared to other online banks.
Customers get 0.30% APY on their uninvested cash. Interest is paid every month and can be tracked through the Cash Management tab in the Robinhood app.
The Mastercard-branded Robinhood debit card can be used internationally and the company doesn’t charge any foreign transaction fees. However, Robinhood places geographical restrictions on where the card can be used.
Currently, the debit card can’t be used in dozens of countries across South American, Asia, Africa, and the Middle East.
Brokerage account can’t be closed
The Robinhood debit card will stop working and new transactions will be declined automatically if the customer closes their brokerage account or downgrades from Cash Management.
The simple reason behind this being that the company doesn’t allow customers to access Cash Management unless they also open a brokerage account.
Aspiration is a socially conscious alternative to traditional banking. It was launched in 2015 to provide cash management services and investment products to customers that value sustainability.
It allows customers to help plant a climate change-fighting tree with every purchase if they agree to round up to the nearest whole dollar. Aspiration ensures that not a single dollar from its customers’ deposits goes to finance fossil fuel projects that harm the planet.
10% of every dollar that Aspiration receives from its customers is donated to charities that are helping people in the United States that are struggling to build a better life.
Aspiration Plus members get carbon offsets for all of their gas purchases with the neobank’s Planet Protection feature. It does that by tallying up the carbon output of the customer’s gas purchases and buying offsets automatically to counter the climate impact.
Aspiration is one of the few neobanks that provide a higher APY compared to their competitors. Customers on the Aspiration Plus plan receive up to 1.00% APY on their savings.
Cashback on purchases
Customers who use the debit card can get up to 10% cashback on purchases made with Aspiration’s Conscience Coalition members. They’re companies that are committed to “doing the right thing.”
Aspiration makes it easier for customers to save for their retirement by offering traditional Individual Retirement Accounts that have a $10 minimum opening deposit and provide tax-deferred growth.
Limited investment options
While Aspiration does provide access to professionally managed funds, customers can’t invest in equities and exchange-traded funds directly. Derivative products like options aren’t available as well.
No cash deposits
An Aspiration account can’t be immediately funded through cash deposits. Checks have to be deposited in-app and any check for amounts over $5,000 needs to be mailed to Coastal Community Bank, Aspiration’s partner.
APY – Robinhood Debit Card vs. Aspiration
Customers with a debit card issued for Robinhood’s cash management account earn 0.30% APY which is lower than the 1.00% APY Aspiration provides to members of its Plus plan. It’s a great deal more than what the former offers.
However, Aspiration Plus costs $15 per month. The same high APY isn’t offered to customers on the standard Aspiration plan that doesn’t charge a monthly fee.
Overdraft Protection – Robinhood Debit Card vs. Aspiration
Robinhood provides comprehensive overdraft protection. Any transaction made using its debit card that would put the account in overdraft is automatically declined. The same is not the case with Aspiration. Transactions can place your Aspiration Spend Account in overdraft status.
Which is better?
Aspiration is the better option for customers that want a cash management account that offers a high APY, a debit card that can be used globally as well as the satisfaction that they’re doing their part in making the world a better place.
Robinhood’s cash management account is a secondary feature. It’s primarily looking for customers that will utilize its brokerage account to actively invest in equities and derivative products. Customers who don’t want a brokerage account will need to open one anyway if they just want to use the Robinhood debit card.
You can take advantage of all the perks that Aspiration offers too. Sign up for an Aspiration account in minutes and help change the world with every dollar you spend.