Here are all the fees you'll pay when using the Robinhood app - and how to avoid them

• Robinhood bills itself as a free platform to buy, sell, and trade investments.
• But users may pay various fees, and Robinhood passes on some third-party costs to customers.
• It's possible to avoid some of these costs, but not all.

Trying your hand at investing has become easier than ever, thanks to the emergence of companies that have made it more accessible. All it takes is for you to download the app of your choice, set up your account, fund it, and then you're on your way to trading.

One of the most popular options out there right now is Robinhood, which is known for fee-free trading. But there are actually some fees associated with using the app.

The Robinhood app

Robinhood was founded in 2013 and grew to one of the most popular services among young investors by 2021, with more than 18 million users and $80 billion in assets. The Robinhood app officially launched in 2015 with a simple interface and account management tools that allow you to check your real-time account balance, read your messages, monitor security prices, and check the latest investing news.

You can download the Robinhood app but will need to open a brokerage account, go through the security steps, and fund your account to get full use out of the app.

How does Robinhood make money?

Robinhood markets itself as a "free" app because users can set up a free account with no minimum investment. Users won't pay annual fees, inactivity fees, ACH transfer fees, commission fees, and other costs common to some other brokerage firms.

Quick tip: Fees might seem small, but investors try to avoid extra costs because they seriously add up over time. According to an example provided by the SEC, a 1% annual fee could lower a portfolio's value by $30,000 over 20 years compared to a 0.25% fee, assuming a 4% annual return. Robinhood doesn't charge an annual fee, but it might charge you in other ways.

Instead of charging commissions, Robinhood makes money through a process called payment for order flow. When a user makes a trade, Robinhood sends that trade to a third party that places many large orders at once for a slight advantage. The larger company then compensates Robinhood. The brokerage also generates income from interest on securities and margin loans and with Robinhood Gold, a premium subscription service that charges a flat monthly fee.

Finally, Robinhood also charges several fees for certain services and transactions, and it may pass on third-party costs to its customers. To avoid surprises when using the app, it's good practice to learn when you might pay extra.

1. Robinhood Gold

Robinhood Gold is a premium feature that allows eligible users to trade on margin, which means you borrow money from the platform to buy securities. Gold members also have access to Morningstar professional research reports and Nasdaq market data. You can try the service for 30 days for free and then upgrade for a flat $5 monthly fee. There's also a 2.5% yearly interest fee on any amount you borrow over $1,000, and you'll need at least $2,000 in your portfolio to keep the margin account.

Quick tip: With margin trading, you borrow money from your brokerage to buy stocks and other securities. This allows you to invest more than you normally would because you're not limited to the amount of cash you have on hand. But it could also amplify your losses, so consider your risks before taking this step. It might be a good move for an experienced investor.

2. Transfer fees

Robinhood typically doesn't charge fees associated with moving your money - with two exceptions:

• Outgoing ACATS fee: If you decide to move money from your Robinhood account to a competing brokerage firm, the Automated Customer Account Transfer Service (ACATS) facilitates that process. You'll pay $75 for each outgoing transfer. But it's still free to sell your investments and transfer the money to your own bank account.
• Domestic overnight check delivery fee: Robinhood can send a check on your behalf to US-based businesses and individuals for free, but you'll pay $20 if you need the check sent overnight.

3. Regulatory trading fees

Robinhood is registered with the Financial Industry Regulatory Authority (FINRA), a private firm that oversees US-based broker-dealer firms. To support some of the costs Robinhood pays toward industry regulations, the brokerage passes on certain fees to its customers. These include:

• Regulatory trading fee: Robinhood customers pay $5.10 per $1 million of principal when they make sales, rounded up to the nearest penny. Sales with a value of up to $500 are excluded from the fee.
• Trading activity fee (TAF): Robinhood also passes a trading activity fee to customers when they sell more than 50 shares of stock. The fee is $0.000119 per share on equity sells and $0.002 per contract on options sells, rounded up to the nearest penny. There's a limit of $5.95 on the fee, based on how the order is executed.

4. Service fees

Robinhood also charges customers for some of the conveniences you can request, such as:

• Paper statements: $5 per month to receive a physical copy of your purchase statement in the mail
• Paper confirms: $2 for every paper confirmation, which is a document that reports the details of a trade completed through your account.
• Domestic overnight mail: $20 when you ask Robinhood to mail something overnight in the US
• International overnight mail: $50 when you ask Robinhood to mail something overnight to someone in another country

5. Potential fees

Robinhood might not charge you for certain transactions and services, but third parties might take their share. These will be passed on to your brokerage account and may include:

• American depositary receipts: American depositary receipts (ADRs) are certificates representing foreign stocks that trade on American exchanges. The banks issuing these certificates may charge custodial fees that typically range from $0.01 to $0.03 per share.
• Returned check, ACH, wire & recall/stop payments: Robinhood won't charge a fee to handle returned checks or stop-payment requests. But the originating, intermediary, or recipient bank may charge a wire transfer reversal fee.
• Foreign transaction fees: Mastercard may charge a currency conversion fee if you use your Robinhood debit card to make foreign transactions in US dollars.
• Out-of-network ATM fees: It's free to use ATMs within Robinhood's network, but an out-of-network ATM provider may charge a fee that Robinhood will directly pass on to you.
• Merchant-imposed fees: Some merchants may charge a fee when you use a debit card or make transactions under a minimum threshold.

How to minimize Robinhood fees

When you open a Robinhood account, you're already avoiding fees that some other brokerages charge. But if you want to minimize some of the other costs of using Robinhood, you can:

• Avoid the upgrade: Consider using the free account instead of upgrading to Gold service.
• Research fees before buying: Before placing a trade or requesting any services, visit Robinhood's support page and look for information about fees and when they apply.
• Search for in-network ATMs: You can withdraw cash from your Robinhood account for free using a debit card at participating stores and at in-network ATMs. Tap the "Find ATMs" button in your Robinhood app to find the nearest withdrawal locations.
• Check out the foreign stock: Before buying shares from a foreign company, find information about potential fees from the bank that issues the American depositary receipt.
• Go paperless: Instead of paying for paper monthly statements and confirmations, choose the electronic versions.
• Transfer to your own bank account: Robinhood charges you a fee when transferring money to a competing brokerage, but not to your own bank account. If you need to pull money out of your Robinhood account, consider moving it to your bank first and then investing elsewhere.

The financial takeaway

If you use Robinhood, you won't pay annual fees, commission fees, inactivity fees, and fees for moving money to your bank account. But you'll pay a $5 monthly fee to upgrade to a Gold account and various service fees for things like requesting a paper statement. The brokerage will also pass on third-party costs, such as regulatory fees and out-of-network ATM fees, to you. It's possible to avoid some of these costs, but you'll need to understand when they may apply.