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This is a wonderful opportunity to get into the murky world of hidden fees and how financial orgs compete to profit from customers who love convenience and the promise of saving money. So get strapped in. This is going to be fun!Now, before we even get to Robinhood, we need to start by establishing the golden rule that all financial institutions base their schemes upon:Give the customer some convenience at a price that seems reasonable.Now, of course, the underlying game is that many things can be made to seem reasonable that might otherwise be less appetizing if they were better understood. While many financial institutions do genuinely want to make customer’s lives easier via some innovation or another, they’re always a little more interested in turning a sure profit along the way.To give you a taste of how said institutions make use of the gap between what they know and you don’t, let’s start with an easy one:Interchange FeesHave you ever wondered how credit cards benefit banks if you always pay your bill on time and therefore never pay interest?Well, the first truth is that most people don’t pay their bills on time and end up paying loads of interest. But more to our present purposes, the second truth is that card issuers get paid anyway in the form of fees charged to merchants (i.e., the people you’re buying stuff from when you swipe your card).Whenever you pull out a card to pay for something, the merchant has to pay for the convenience of you using said card. Sometimes this fee is very small (say $.50 on a transaction of $100), and sometimes this fee is substantial (say $3 for the same). This difference has little to do with the complexity of the transaction, and a lot to do with paying the demand of whichever institution issued the card.Put another way, the lion’s share of every interchange fee is a reward for some party having convinced you to use their card. And the better the deal they threw at you to influence said decision (cashback, Air Miles, balance transfers, etc), the higher the fee they’ll try to charge the merchant.Put yet another way, merchants ultimately subsidize the rewards you get from your card-issuing institution, with little control over the size of said reward.Why are merchants ok with this? Why allow you to use a card that costs them 3% if they could force you in a direction that only costs them 0.5%?They can generally choose whether to individually accept Mastercard or Visa or Amex, but not which of their cards or end issuers. And not accepting those larger categories will almost certainly cost them sales.Most merchants aren’t aware of how much more some cards charge than others. They usually only see rolled-up numbers that speak to averages.Merchants will ultimately pass back these costs to consumers in the form of higher prices anyhow.Bank AccountsNow, you might be wondering what all this has to do with checking and savings accounts. Well, that’s where things get interesting.First, you’ve probably noticed that most of your accounts now come with a Visa or Mastercard branded payment card, This is partially for convenience. Lots of people love being able to buy things in cash rather than credit. But this is also for profit. By increasing the share of purchases made on those networks, the parties involved can increase the share of purchases that come with more lucrative interchange fees.Unsurprisingly, these new Robinhood accounts (technically cash management accounts) will come with a branded Mastercard.But There’s More!It isn’t just the interchange fees. To recoup the 3% interest they’re paying out (and other expenses), they’re also going to take advantage of a few other tools:The bulk of deposits will be invested, which will bring in something like 2%.They’re going to get the maximum possible use out of your data. While they may not sell your personal info in any direct sense, they’ll almost certainly use the aggregate data in some anonymized fashion. They’ll also use what they learn about you to pitch additional products down the road (mortgages, car loans, insurance, etc).Building on #2, they seem likely to sell access to their customers via custom APIs at some point. (Think of those one-click buy buttons from PayPay that show up on some merchant checkouts — i.e., more interchange fees.)Every dollar you spend using their card is a dollar not accruing interest in your account. Provided that you spend often and don’t maintain a significant balance, this means lots of fees in vs. payments out. As such, expect to see incentives that encourage the use of said cards.Like Amazon, they may end up taking a small loss on some accounts in these early stages of their growth. In the big picture, however, they’ll use what they gain to grow scale and position themselves for future dominance.Is That…Bad?The cute thing about the Robinhood brand is the idea that they’re somehow taking from the rich (legacy banks) to reward the poor (retail customers). They show you fancy comparison charts that say “look — they’re charging you all these fees!”, suggesting that you’re far better off with their no-fee products.Now, there’s a way in which they’re telling the truth. Legacy banks are notorious for milking fees wherever they can. But there’s a reason that competition and innovation alone have only brought the costs so low. Credit risks, security, and transaction complexity are expensive problems to solve, no matter your model. Someone has to pay for it all, and that person is always going to be the consumer. While Robinhood might be able to take advantage of their small size and ideal customer base today, they’re going to face all those same challenges over time.In this case, Robinhood is accelerating the larger trend towards pushing more and more transactions into interchange fee territory. This can be a net positive from some lenses, inasmuch as it can mean more money flying around the economy creating more growth. But it also means that merchants are going to raise prices (or else reduce them more slowly) to compensate, which is its own significant form of consumption tax that all get to pay.This isn’t to say that Robinhood is especially bad or sneaky. They’ve got a clever marketing thing going, they’re remarkably efficient, and their apps are genuinely well designed for customer convenience. Just be sure to always use such products with eyes open as to what the marketing materials don’t tell you.PS - There’s some ongoing discussion about whether funds deposited in these accounts will be fully insured, and how. Traditionally, checking/savings accounts are eligible for FDIC insurance, which is government-backed and viewed as extremely safe. As of the time of writing, Robinhood isn’t offering said insurance on these new accounts. It looks like they’re trying to cover them under their existing SIPC protections (designed for brokerage accounts). I don’t know enough about the difference or the roadmap to comment intelligently here, but I’d be really surprised if Robinhood expects to see significant growth without some form of ironclad insurance that protects against their own potential collapse. I’ll update this PS with links as I find good commentary to this end.EDIT: It looks like Robinhood spoke prematurely about their SIPC coverage. See more here: Jeremy Arnold's answer to Is it safe to deposit money into Robinhood’s new checkings and savings accounts?.

Evaluating just tax on your interest/savings is very myopic and can lead to poor decisions. Why do I say that?Repatriate or not is a question that requires a lot of thoughtInterest / dividends income in many western countries is taxable. For instance, if you have an account in the US, UK or Canada, your financial institution will automatically report it to tax authorities, and may also deduct tax (TDS) before you get paid.Interest rates in the west - in $s £s or € - are much less than offered for ₹.Of course other factors like exchange rate fluctuations will have to be taken into accountIt is not practical - or wise - to evade taxes. Look for holistic strategies to avoid and minimize taxes. Check out Difference Between Tax Avoidance and Tax Evasion (with Comparison Chart) - Key DifferencesTax planning needs to take a 360 view of your earnings and finances and not just interestUnless you are a professional financier or full-time investor (e.g Warren Buffet), Interest and dividends from investments are going to be one component of your earnings.Tax planning will also have to consider one’s global income considering tax treaties India has with other governments . E.g - US – India tax treaty - IRS.govAnother key factor to keep in mind: A “returning NRI” will become a (tax) “resident” of India after returning and spending a set period of time in India.Bottomline: Trawling in Quora and online forums may give you partial answers. If you have sizable income and investments, hire a competent tax adviser.Reposted on blog: GaramChai.com/blog

To chalk out an investment plan, you should first identify how much you can save from your income. Take a look at your bank statements for the last few months. See how much you receive in earnings, and how much of that income you spend. The rest is what you have available to save and invest.You also need to plan for contingencies, setting aside some amount of your income as a safety net in case there is an emergency. A rule of thumb is to have 2-3 months of expenses available in the bank or other liquid investment.Once you have these factors under consideration, you can plan out your investments for meeting your future goals and save up a rainy day fund.Considering the investment options available to you; direct stock market investments are inherently risky and earning consistent returns requires considerable research. Investing in a bank FD or simply leaving the money in a savings account will not earn you enough return to meet your targets. Mutual funds are an attractive investment for earning a good return without having to understand the nitty gritty of the markets.There are two broad categories of mutual funds that you can consider investing in; debt and equity. Debt is less volatile but also returns less. Equities are more volatile in the short term, but also return more over the long term. Here’s a chart that shows the relative performance of various mutual fund types - both debt and equity, in comparison to bank accounts and savings.As a 25 year old, you have a considerably long investment horizon since you are just at the beginning of your career. You can take some amount of risk in order to earn a higher return. For more on choosing between debt or equity mutual funds, check out this answer.Which mutual fund category in India gives better return over long period (Debt or equity)?Moreover, you aren’t limited to choosing only debt or only equity funds. The combination of debt and equity funds that is most suitable for your own unique situation depends on a variety of factors including how long you can stay invested for, how stable your earnings are, how comfortable you are with fluctuations in your wealth, etc.You can check out my website, Savvy, and get a free recommendation for a portfolio we’d recommend for you. There you can also go through other portfolios with different combinations of debt and equity funds and see their risk and return characteristics.