A cash account holds money you deposit, not borrowed funds

A cash account on Robinhood is an investment account where you can only trade with money you actually own. You deposit cash, and you trade using that cash. You cannot borrow money from Robinhood to buy stocks or other securities — that borrowing option exists in a different account type called a margin account.

The main practical difference: in a cash account, your buying power equals the cash sitting in your account. If you have $5,000 deposited, you can buy up to $5,000 worth of securities. Once you sell something, that money becomes available to spend or invest again, but only after the sale settles — usually two business days later.

Cash accounts are simpler than margin accounts and carry no debt risk, because you are never borrowing. They also have no monthly fees and no minimum balance requirement on Robinhood.

Key Takeaways

  • A cash account lets you trade only with money you have deposited, not borrowed funds.
  • Your buying power is limited to your cash balance, and you must wait for sales to settle before using that money again.
  • Cash accounts have no margin fees, no interest charges, and no minimum balance.
  • Robinhood enforces a rule that prevents frequent trading patterns in cash accounts, which can temporarily restrict your ability to buy.

How your buying power works in a cash account

When you deposit $2,000 into a cash account, your buying power is $2,000. You can buy $2,000 worth of stocks, ETFs, or other securities that Robinhood offers. Your buying power does not increase until a sale settles.

Settlement takes two business days. If you sell $500 worth of stock on a Monday, that $500 does not become available to spend or reinvest until Wednesday. During those two days, your buying power stays the same. This delay is a rule of the U.S. securities system, not a Robinhood policy.

If you try to buy before a sale settles, you will see a message that your buying power is insufficient. You must wait for the settlement to complete. Some traders deposit extra cash to avoid this waiting period, but that is optional.

The pattern day trader rule and cash accounts

Robinhood enforces a rule called the pattern day trader rule, which applies to cash accounts. If you make four or more round-trip trades (buying and selling the same security) within five business days, Robinhood will flag your account as a pattern day trader account.

When that happens, Robinhood restricts your ability to buy for 90 days. You can still sell, but you cannot buy new positions. This restriction lifts after 90 days of no pattern day trading activity.

This rule comes from the Financial Industry Regulatory Authority (FINRA), not from Robinhood alone. It applies to all brokers. The rule exists to protect newer traders from the risks of frequent trading, but it can feel limiting if you trade actively with a small account.

Cash accounts versus margin accounts

The core difference is borrowing. A margin account lets you borrow money from Robinhood to buy securities — you can trade with more money than you have deposited. A cash account does not allow borrowing at all.

Margin accounts charge interest on borrowed money and have monthly fees. They also carry the risk that Robinhood can force you to sell positions if your account value drops too far. Cash accounts have none of these risks or fees.

Margin accounts do have higher buying power in the short term, which appeals to active traders. But that power comes with debt and risk. For most newer investors, a cash account is simpler and safer.

When settlement delays matter most

Settlement delays are most noticeable if you trade frequently or with a small account. If you have $1,000 and you sell $500 worth of stock, you are down to $500 in buying power for two days. If you want to buy again immediately, you cannot.

Some traders solve this by depositing more cash than they plan to use at once, so they always have unsettled money available. Others simply plan their trades around the two-day settlement window. Neither approach is required — it depends on your trading style.

If you rarely trade or hold positions for weeks at a time, settlement delays will not affect you much. The restriction only matters if you are buying and selling frequently within the same week.

How to avoid pattern day trader restrictions

The simplest way to avoid the restriction is to make fewer than four round-trip trades in any five-business-day period. A round trip is a buy and a sell of the same security. Selling without buying first does not count.

If you do get flagged, you cannot lift the restriction early — you must wait 90 days. After 90 days with no pattern day trading activity, the flag disappears and your account returns to normal.

Some traders open a second cash account to work around this, but Robinhood's terms of service prohibit maintaining multiple accounts for the same person. If you are caught doing this, Robinhood can close both accounts.

Frequently Asked Questions

Can I transfer money out of my cash account before it settles?

No. Robinhood will not let you withdraw cash that is tied up in unsettled trades. You must wait for the settlement to complete — usually two business days — before you can transfer money out of the account.

What happens if I try to buy with unsettled cash?

Robinhood will reject the order and show you an error message saying your buying power is insufficient. You must wait for the sale to settle before you can use that money to buy again.

Does a cash account cost money to maintain?

No. Robinhood charges no monthly fees, no account maintenance fees, and no interest on cash accounts. The only costs are trading commissions (which Robinhood does not charge) and any bid-ask spreads when you buy or sell.

Can I switch from a cash account to a margin account?

Yes. You can change your account type in Robinhood's settings. Switching to a margin account may require meeting a minimum balance, which varies. Robinhood will show you the requirements before you confirm the change.

What if I get flagged as a pattern day trader by mistake?

Once Robinhood flags your account, the restriction stands for 90 days. You cannot appeal or request an exception. The only way to avoid this is to track your trades and stay under four round trips per five-business-day period.