This is correct but most people don't carry a lot of cash in their brokerage account for very long. They either use it to acquire securities, or they move it out to a real bank account. So SIPC is not equipped, financially or logistically, to act like the FDIC.

Incidentally, here is a really good article about what happens when the FDIC takes over a bank:

https://www.npr.org/templates/story/story.php?storyId=102384...

>This is correct but most people don't carry a lot of cash in their brokerage account for very long. They either use it to acquire securities, or they move it out to a real bank account. So SIPC is not equipped, financially or logistically, to act like the FDIC.

My understanding is that:

- "Cash" in brokerage accounts is usually actually some form of investment, and is usually listed as such (eg, as a deposit, money market fund, etc). The SIPC protects the holding of the investment, not the value of the investment, so if the fund goes bad, there is no protection.

- Cash in brokerage accounts is cash, and is not very common. It isn't going to make any interest, because it's not being invested by either the account holder or the brokerage, unlike fractional reserve banking. The SIPC protects this, but that's because it shouldn't have been at risk anyway.

The Robinhood account is thus confusing. If it is offering interest, then it's not cash, but a cash investment, and the actual value of the investment, which is what the clients would actually care about, isn't protected at all.

Edit: it appears they've pulled the announcement. Reading into that apology, maybe it was some sort of sweep into FDIC-insured bank accounts? But if so, how could that possibly offer 3% return?

I'm glad to see they're rethinking the details and promotion of this new service. I don't see how they can provide 3% return and still get covered under FDIC, but maybe they can find a way to get on the right side of SIPC.