The Robinhood Gold Card has shaken up the credit card industry with an unprecedented 3% cash-back on every purchase. It’s an exciting offer, but is it more than a short-term gimmick?
Article summary: Earning 3% cash-back on everything you buy is undeniably attractive, and if Robinhood can sustain that high reward rate, it could be a game-changer in the credit card industry. But there are still many unknowns about the card, including the application process and its credit limits. I won’t be first in line to get the card, but it will be fascinating to see how it performs in the market and how competitors respond.
Robinhood Gold Card Overview
The Robinhood Gold Card’s key features include the following:
- 3% cash-back on all purchases, with no limits or categories.
- 5% cash-back on travel booked through Robinhood’s portal.
The card is only available to Robinhood Gold subscribers, which costs $5 per month or $50 per year.
Note that Robinhood does not give you 3% straight cash-back, but rather issues you “cash-back” in the form of points, which can be redeemed for a cash deposit into your Robinhood brokerage account, travel through the Robinhood travel portal, gift cards, or online purchases at certain retailers.
Points are valued at 1 cent each, regardless of how you redeem them.
When making purchases through the travel or shopping portal, you can pay with a combination of points and your credit card.
The card is not yet available. You have to join the waitlist, which requires a Robinhood brokerage account. While you can join the waitlist with a free Robinhood account, you have to be a Robinhood Gold member to get the Gold card.
Robinhood has also stated that those with a current Robinhood Gold membership will get priority access to the card.
Joining the waitlist doesn’t guarantee approval or impact your credit score. It’s not yet clear how big of a rollout they’ll have, and the company has not provided an exact date for the card’s release.
#1. There’s Still A Lot We Don’t Know
One of the primary questions is what credit limits will be offered. If the limits are low, the card’s usefulness will be minimal.
Another significant unknown is the application process and how easy it will be to get approved for the card. Robinhood is saying that Gold members will get priority access; does this mean it’s going to be a softer launch?
Robinhood is also encouraging non-Gold members to join the waitlist for the card. It remains to be seen if users can apply for the card without having a Gold account first, or if you have to opt into the Gold membership in order to apply.
It will be interesting to see how many people get approved when the card becomes available.
#2. How Long Will It Last?
It’s fair to question whether the 3% cash-back rate will be a permanent feature or will be lowered in the future.
Robinhood purchased X1 in June 2023. The X1 card initially offered 3% cash-back on all purchases made by those who spent $15,000 each cardmember year. Those who spent less than $15,000 earned 2% everywhere.
However, X1 changed its 3% offer 14 months after initial launch. Instead, cardholders earned 3% rewards on spending between $1,000 and $7,500 each calendar month. Spending below $1,000 and above $7,500 only earned 2%.
Will Robinhood do the same?
#3. It’s a Great Card for Paying Taxes
One of my first thoughts about this card is that if you pay your taxes with a credit card, the lowest fee among the providers that the IRS accepts is 1.82%.
This means you can profit by 1.18% when paying taxes and earning 3% cash-back.
Even if the Robinhood card’s credit limits are low, you could still pay the balance and make another payment. This makes the card much more valuable for those with higher tax payments, such as self-employed individuals.
#4. This Is a Bad First Credit Card
Robinhood customers skew young. Some of them may only have one or two credit cards. Some may have none.
It’s never a good idea to have a card attached to a fee as one of the oldest cards on your credit report, because the length of your credit history is an important factor in your credit score.
While the Gold card doesn’t have an annual fee per se, you do have to maintain a Robinhood Gold account, which costs $5 per month.
So, say the Robinhood card is one of the oldest cards on your credit report. If that’s the case, you’ll likely be stuck paying for a Gold membership to keep your credit history intact, whether or not you find the card useful.
And, unlike other credit card issuers, there’s no option to downgrade with Robinhood.
If you’re looking for a credit card with no annual fee and flexible options for the future, check out our post on the best starter credit cards.
#5. If You’re Into Travel Rewards, You Can Buy Points When They Go on Sale With Your 3% Cash-Back
One way to earn points for airline loyalty and hotel programs is to buy them.
I often purchase points from different loyalty programs when they go on sale, and I know I can get excess value.
For example, at the time of publication, Wyndham points were on sale for 0.93 cents each. Personally, I value these points at around 1.25 cents each, so that discount offers quite a bit of savings when I know I have a use for them.
While the Robinhood Gold Card isn’t a travel rewards credit card, you can still take the 3% cash-back you earn and buy points when it makes sense.
In other words, if you buy points at a good value, you can mathematically increase the value you earn from your Robinhood Gold Card. This is for travel rewards enthusiasts who know how to maximize the value of their points and miles.
Another consideration if you’re into travel rewards is that you can earn 2% back in transferable points via a card like the Capital One Venture X. If you can get 1.5 cents per point value from your Capital One points, which is obtainable when utilizing their transfer partners, you’re better off going with the points. If you simply use your Capital One points to erase travel purchases off your statement, the Robinhood Gold Card gives you better value.
#6. The IRA Match Is a Good Incentive to Keep a Gold Membership
For those considering whether the 3% cash-back justifies paying for the Gold membership, know that Robinhood also offers a 3% match for those contributing to their IRA with a Gold membership.
So for every $1,000 you contribute to your IRA, Robinhood gives you $30.
The catch is you only get to keep the matched money after five years.
Despite that lengthy requirement, it’s is a solid offer. If you contribute around $1,700 to an IRA, you essentially waive the fee for a Robinhood Gold membership. Contribute more, and you’ll get free money in your IRA.
While Robinhood doesn’t offer robo-advisor services or mutual funds of their own, you can invest in low-cost ETFs, such as Vanguard’s retirement funds.
#7. Do Robinhood Customers Mind Paying Debt?
If you look at Robinhood’s Q4 2023 quarterly report, it mentions upfront that net interest revenue increased 41% year over year, to $236 million.
While they don’t offer specific details, the net interest revenue line item likely includes a mix of interest income sources, such as:
- Interest earned on margin loans to customers.
- Interest earned on customer cash balances.
- Interest earned on Robinhood’s own corporate cash and investments.
Of course, the one of those that’s concerning to me is interest on margin loans.
As very few individual investors need to be using margin loans (it can make sense for high-net-worth investors to save on capital gains taxes), it’s fair to wonder whether Robinhood knows their younger demographic customer doesn’t mind taking on a little debt — and paying Robinhood to do so.
While investing allows your money to compound, it also works in reverse. Credit card debt will compound at far higher rates than the stock market can, leaving individuals looking to build wealth fighting a hard uphill battle.
#8. How Much Pressure Will Other Credit Card Issuers Have to Increase Their Rewards?
If the card has high credit limits and the 3% cash-back stays in place, I can see Robinhood taking up quite a bit of market share in the credit card space.
While it’s 10 years old, the Citi Double Cash card was the first to offer 2% cash-back on everything. This cash-back comes in the form of 1% when you spend and 1% when you pay it off.
But soon after that offer launched, other issuers started offering their own 2% back on everything card. Today, there are numerous no-annual-fee 2% back cards on the market.
Competition causes credit card issuers to offer some crazy incentives to their users, which can be a good thing for us.
After all, when Chase first launched the Chase Sapphire Reserve, it had about $200 million in losses on the card because it launched with an insane welcome offer. However, it was worth it in the long term, as it lured many high-spenders to switch from American Express.
So, I’m eagerly anticipating how other credit card issuers react to this 3% offer.
Will we see high bonus offers? Other 3% cash-back cards?
Time will tell.
