Robinhood Launches 2% Cash Account on Brokerage Accounts, Offer Debit Cards

Robinhood, the stock trading app popular with millennials, unveiled plans on Tuesday for a bank account-like feature that will pay customers 2.05% interest and offer a no-fee debit card service.

The launch of what the company calls “Cash Management” comes after federal regulators forced Robinhood to withdraw an offer in December to pay a market-leading 3% interest. That stumble came after regulators said the arrangement on brokerage account balances would be ineligible for depositors’ insurance, and that Robinhood had failed to clear the product with them.

“We made mistakes with that announcement, which led us to hit the reset button and start over from scratch,” said Robinhood in a statement about its latest plans.

In revamping the product, Robinhood decided to follow the example of other brokerages and create so-called “sweep accounts,” to hold customers’ cash. The sweep accounts are maintained by partner banks, and are back-stopped by up to $1.25 million in insurance per customer.

Meanwhile, Robinhood customers can also access the cash in sweep accounts via a debit card and a network of no-fee ATMs—meaning a customer could sell shares, and then access the proceeds in cash moments later.

“The idea is to have one app on your phone for all financial services—from spending, investing, and earning interest,” said Josh Elman, Robinhood’s vice president of product, in an interview with Fortune.

The company attributed the lower interest rate—2.05% versus the 3% it dangled last year—as due to decisions by the Federal Reserve to drop rates over the last year. Robinhood’s decision to reduce the earlier offered rate is also likely to costs associated with maintaining the sweep accounts and partner bank network. Currently, Robinhood pays no interest on cash balances.

The 2.05% rate announced by Robinhood is comparable to robo-adviser service, Betterment, which offers 2.04% on its cash management and to other financial startups like SoFi and Wealthfront. Like its competitors, Robinhood says the rate will fluctuate based on macroeconomic factors.

Robinhood’s announcement comes at a time of intense competition among brokerages. This month, a number of brokerage giants, including Charles Schwab and TD Ameritrade, announced they would eliminate fees on stock trades—a move that sent their shares tumbling.

Robinhood, which raised $323 million at an eye-popping valuation of $7.6 billion in July, stands out from the incumbents by having never charged trading fees—an approach that’s part of what founder and co-CEO, Baiju Bhatt, told Fortune is the company’s vision of “democratizing access” to markets regardless of a person’s wealth.

Nonetheless, the move to zero fee commissions by the big brokerages could increase pressure on Robinhood and other upstarts to differentiate themselves to consumers. The higher interest rate on cash balances could be one way to do that, though Fidelity and other major players have recently begun increasingly the rates they pay too.

Robinhood’s mobile-first interface and millennial-focused features may also help it attract and hold on to customers. In the case of its new Cash Management service, those features include customizable debit cards branded by MasterCard, and the ability to pay bills with Apple Pay and Google Pay.

Earlier this week, Robinhood—which described its IPO aspirations in 2018 but has since elected to raise funds privately—announced that former Securities and Exchange Commissioner Dan Gallagher had joined its board.