Withdrawal is a very important aspect of the stock trading process. Even if you intend to be a long-term investor, a day could come when you’ll want to withdraw and enjoy your profits. Now, although a lot of brokers promise a smooth and quick withdrawal, everything doesn’t always go as planned and you could have trouble withdrawing your money. So why can’t you withdraw from Robinhood?
Generally, Robinhood allows you to make 5 withdrawals or withdrawals of up to $50,000 every business day. However, there are certain rules surrounding withdrawals like the settlement rule, the referral stock rule, and so on. In certain conditions, these rules could prevent your Robinhood withdrawal. These rules will now be considered in detail. So stick around!
In this article, some of the rules we will consider include:
- The rule surrounding the settlement period
- The rule surrounding the deposit of funds
- The rule surrounding withdrawals into a different bank account
- The rule surrounding referral stock
The Settlement Period Rule
First things first, what is a settlement period? A settlement period in the securities industry is the time frame between when a trade order is executed and when that particular order is seen to have been concluded.
During this period, when securities are sold and bought, both parties are obligated to carry out their own part of the transaction. The buyer pays for the securities and the seller delivers them.
Now you know what a settlement period is. After a sale is completed, the cash needs to “settle” and it usually takes 2 days to do so. After which you can then withdraw it into your bank. However, if the settlement period is not yet complete and you try to withdraw, you will be unable to because it is not withdrawable cash yet.
This rule may be one of the reasons why you can’t withdraw from Robinhood.
FYI: The best way I've found to invest in ETFs is through M1 Finance. It's free and you even get an instant line of credit! Have a look here (link to M1 Finance).
The Deposit of Funds Rule.
After the 5 trading days, the un-invested funds will then appear in your account as withdrawable cash. So if you can’t withdraw from Robinhood, it might be that the 5-trading-day period is not over yet.
The main purpose of this rule is to combat money laundering by fraudulent investors, as well as for risk management. You should also know that holidays and weekends are not counted as part of the trading days.
NOTE: The easiest way to add diversification to your portfolio is to invest in real estate through Fundrise. You can become private real estate investor without the burden of property management! Check it out here (link to Fundrise).
The Rule Surrounding Withdrawals Into a Different Bank Account
In complying with the AML regulations against money laundering, Robinhood only allows you to withdraw cash into the first account from which you deposited it initially.
So if you can’t withdraw from Robinhood it might be that you’re trying to withdraw into a different account other than the one you used to deposit the first time.
What if You Really Need to Withdraw Into a Different Account?
If you really wish to withdraw your funds into a different account other than the one you used to deposit, one rule has to be followed first:
The funds must stay in your Robinhood account for a minimum of 60 days before you’re allowed by Robinhood to request a withdrawal into a different bank account.
After the 60 day period is over, you will be able to request a withdrawal into a different bank account of your choice.
However, it is important to note that before you’re allowed to request for a withdrawal into a different bank account, Robinhood will require that you provide them with certain documents such as:
- A clear photo of both the back and front of your government-issued ID card.
- A statement from your bank saying that you own the 2 bank accounts.
- The specific amount you wish to withdraw as well as the particular bank account you wish to withdraw the cash into.
- A short explanation for why you no longer wish to withdraw to the bank account you initially used.
FYI: Another great way to get exposure to the real estate sector is by investing in real estate debt. Groundfloor offers fantastic short-term, high-yield bonds that can add diversification to your portfolio!
The Referral Stock Rule
What are referral stocks? As you might be already used to the term referral, it simply means referring a product or service to a friend or someone else. Most companies usually allow you to refer a friend, after which such a friend gets awarded something. With most brokers, they get awarded free shares after funding their account.
Just as your friend gets awarded stocks after they fund their account, you who referred to them also get a share of stock for referring to them. This means you can get awarded free shares for just referring a friend. These are known as referral stocks, and you can get awarded free stocks of up to $500 every year for referring friends.
The rule surrounding referral stocks is that the proceeds from a referral stock must stay in your Robinhood account for a minimum of 30 days. If you sell these stocks before the end of the 30 days period, they will not appear as part of your withdrawable cash and you will not be able to withdraw the cash until after the 30-day rule.
For example, if you’re awarded a referral share worth $15, you will not be able to withdraw the $15 you were awarded by selling the stock until the 30-day period is over.
As I told you, withdrawals on Robinhood should generally be easy. However, there are certain rules which could hold you back.
These rules include the rule of settlement periods that requires cash from transactions to settle for two days before withdrawal and the deposit of funds rule that prevents uninvested cash from being withdrawn until after five days.
There is also a withdrawal into different bank accounts rule to prevent money laundering, and the rule surrounding referral stocks which prevents the withdrawal of awarded stock for 30 days after liquidation.
If you have enjoyed this article, please share it with others. If you have any questions, please let me know in the comments and I will answer them as soon as I can.
‘Till next time…
Over the past years, I have discovered several tools and products that have helped me tremendously on my path to financial freedom:
P.S.: The links below are affiliate links, which means I receive a small commission at no extra cost to you when you sign up for one of the services. Thank you for your support!
1)Personal Capital is simply the best tool out there to track your net worth and plan for financial freedom. Just their retirement planner alone has become an invaluable tool to keep myself on track financially. Try it out, it's free!
2) Take a look at M1 Finance, my favorite broker. I love how easy it is to invest and maintain my portfolio with them. I can set up automatic transfers, rebalance my portfolio with one click and even borrow up to 35% of my assets at super low interest rates!
3) Fundrise is by far the best way I've found to invest in Real Estate. You can diversify your portfolio by investing in their eREITs or even allocate capital to individual properties (without the hassle of managing tenants!).
4) Groundfloor is another great way to get exposure to the real estate sector by investing in short-term, high-yield real estate debt. Current returns are >10% and you can get started with just $10.
5) If you are interested in startup investing, check out Mainvest. I've started allocating a small amount of assets to invest in and support small businesses. Return targets are between 10-25% and you can start with just $100!
To see all of my most up-to-date recommendations, check out the Recommended Tools section.