Robinhood cuts margin interest rate to 2.5%

Online brokerage Robinhood Markets Inc has cut its annual margin interest rate for premium customers in half to 2.5%, the company said on Monday, making it one of the cheapest in the sector.

The rate cut is part of the company’s overall goal to lower the cost of investing, Robinhood said in a statement, and is the latest competitive move by the popular trading app.

It comes less then a week after Massachusetts securities regulators accused the company of engaging in aggressive tactics to attract inexperienced investors and failing to prevent outages on its trading platform.

Robinhood in a statement said it disagreed with the allegations and will defend itself.

The lower margin rate will be available to customers who pay $5 a month for its Gold account, and meet certain eligibility requirements, the company said.

“We review factors like investment objectives, experience, and risk tolerance to determine eligibility,” said Madhu Muthukumar, Robinhood’s head of product management.

Founded in 2013, Robinhood has been credited with helping usher commission-free trading throughout the retail brokerage industry.

It has seen business boom during the coronavirus pandemic as more homebound consumers took to buying and selling stocks online. The app now counts more than 13 million users.

While its user-friendly and engaging service has made it appealing to millions of young customers, it has also drawn the scrutiny of critics and regulators who are concerned the company may be encouraging risky behavior in retail investors. It also suffered a number of outages this year.

Massachusetts Secretary of the Commonwealth William Galvin, the state’s top securities regulator, in an administrative complaint on Wednesday alleged that Robinhood marketed itself to investors without regard for the best interest of its customers.

The complaint alleged that Robinhood used the promise of free stock trades to attract new users and strategies such as “gamification” to entice repeated use of its app.

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