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Is M1 Finance Safe? Learn How M1 Keeps Your Money Secure

Last Updated on May 6, 2023 by Andia Rispah

Disclosure: Please note that this article may contain affiliate links which means that – at zero cost to you – I might earn a commission if you sign up or buy through the affiliate link. That said, I never recommend anything I don’t  believe is valuable

We talk about M1 Finance a lot here on Robo-Advisor Pros for a good reason: It’s one of the most affordable robo-advisors, with low minimum investments and zero account management fees. It’s one of those robo-advisors that reminds us that everyone should have an opportunity to invest, no matter their current net worth. Online investors ask, “Is M1 Finance a scam?” “Is M1 Finance Legit?” and “Is M1 Finance secure?”

Yet, free investment management might sound too good to be true. The good news is that, no, M1 Finance is not a scam, and yes, it’s a legitimate and secure robo-advisor! In this post, learn more about how M1 Finance keeps your money safe.


*Disclosure: Please note that this article may contain affiliate links which means that – at zero cost to you – I might earn a commission if you sign up or buy through the affiliate link.

What is M1 Finance?

M1 Finance is a financial services company and one of only a handful of free robo-advisors. It has a minimum investment requirement of $100 for investment accounts or $500 for retirement accounts. They offer premium services under M1 Plus for $125 per year, but many find the basic, free account more than adequate for their investment needs. (Barbara Friedberg, the owner of this site, has an account!)

Clients can either create their portfolios or choose a pre-made option. Either way, investment portfolios are made up of any number of the 6,000+ stocks and ETFs available through M1 Finance. M1 Finance takes care of rebalancing your investments if your allocations get off-track.

Another great feature of M1 Finance is that they offer various account types: individual and joint taxable accounts, IRAs (Traditional, Roth, SEP, and Rollovers), LLCs, Trusts, Partnerships, and Corporate accounts.M1 Finance offers a lot of freedom to its users. Consequently, they don’t offer special tools such as tax loss harvesting. If you’re looking for a platform that offers expert investment advice or tax loss harvesting, you may have to look for a wealth management firm or full-service robo advisor like Empower.

M1 Finance

Is M1 Finance Safe?

Yes, M1 Finance is safe. Its responsibility is to keep your account secure, and they take that responsibility seriously. M1 Security meets industry standards and aligns with security measures taken by other robo-advisors and their competitors.

How Safe is M1 Finance?

There are two main ways M1 Finance protects your account:

1. Encryption

Account systems are protected through 4096-bit encryption, which M1 Finance states is military-grade. The encryption protects your data as it’s transferred to or stored in the M1 Finance system.

2. Two-Factor Authentication

If the base-level encryption isn’t enough for you to feel fully secure, M1 Finance also allows users to turn on two-factor authentication. Two-factor authentication usually requires users to approve login attempts via their cell phone, making this a nice security feature.

M1 Finance is as safe as your bank!

How Does M1 Finance Protect My Money?

In addition to their security features, M1 Finance also goes to great lengths to ensure your money is protected against loss whenever possible. Below are the ways in which the platform protects your funds:

  • SIPC membership
  • FINRA registration
  • FDIC coverage

Read on as we look at each of the money protection measures.

M1 Finance

1. SIPC Membership

Any investment should be considered “at risk,” as changes in the market can result in a loss of investment portfolio value. However, users are secure from M1 Finance default or bankruptcy as they are a member of the SIPC (Securities Investor Protection Corporation). 

What Is SIPC?

SIPC is a nonprofit membership corporation that protects customers against the loss of securities (stock and bonds) and cash held at a financially-challenged brokerage firm that is a SIPC member. The membership protects investor funds up to $500,000, or $250,000 maximum for cash claims.

Since SIPC’s inception more than 50 years ago, the corporation has recovered more than $141 billion worth of assets for over 50 investors. Even so, SIPC wouldn’t cover market fluctuation-related losses. 

So, if you have an M1 Finance account and the company goes bankrupt, SIPC will facilitate your money recovery. However, the corporation wouldn’t offer any help in case your investment’s market value declines or bad stock picks.

M1 Finance

What Does SIPC Cover?

As mentioned earlier, the Securities Investor Protection Corporation does not protect you from market-related loss. Instead, these insurance benefits kick in if you lose money because of liquidation or failure of the company. Even so, it’s highly unlikely.

“M1 Finance went from managing $1 billion in assets to managing $3.5 billion in almost exactly a year. The company also saw a 3x increase in new sign-ups in January of 2021 compared to the previous month.”

Builtinchicago.org article “M1 Finance Adds to Year of Growth With $75M Funding and 140 Planned Hires” by Gordon Gottsegen.

Moreover, the account balance for the investor is from the loss of assets of up to $500, 000. Hence, you must ensure you don’t exceed your account asset’s SIPC insurance limit to obtain full coverage against brokerage bankruptcy.

However, if you exceed the insurance limits, you may transfer the extra to another broker-dealer. For instance, if your investment account has $700,000 worth of assets, you must transfer $200,000 to another dealer to benefit from SIPC coverage for your entire balance.

Your other brokerage accounts must have the matching SIPC coverage amount for you to obtain protection against brokerage account asset losses of the excess amount.

M1 Finance has also purchased additional insurance to help supplement the protection already available through SIPC. The practice is common among legitimate financial institutions.

2. FINRA Registration

M1 is a legitimate financial services company registered as a broker/dealer with the Financial Industry Regulatory Authority (FINRA).  It’s another reliable source of your funds’ security and an M1 Finance investor.

What Is FINRA?

FINRA is a non-profit organization that aims at protecting investors through stockbrokers supervision, offering investing education, and enforcing their governing rules. FINRA ensures firms’ compliance with federal securities laws and regulations.

Basically, the organization has one important mission: “to protect investors and ensure the market’s integrity” that oversees brokers/dealers across the United States. They ensure that investor protections are in place, broker-dealers are operating fairly and ethically, and that investors receive appropriate disclosures about any investment they make.

How Does FINRA Regulate M1 Finance?

FINRA regulates M1 Finance under the Securities and Exchange Commission (SEC) supervision. It protects investors from abusive or fraudulent practices by regulating sales and trading practices, discipline, licensing, and marketing.

Essentially, the body regulates M1 Finance by:

  • Keeping the company in check regarding federal securities laws and regulations compliance.
  • Investigating possible law violations involving disciplinary actions.
  • Addressing investors’ complaints against brokerages.
  • Offering investing education to the public.

You can investigate specific brokerages using FINRA’s BrokerCheck service. That allows you to see if a broker is licensed and if they have any public customer disputes.

FINRA membership demonstrates M1 Finance’s commitment to caring for its customers and providing safe, secure investment opportunities.

3. FDIC Coverage

M1 Finance eligible deposits qualify for the Federal Deposit Insurance Corporation (FDIC) coverage. Another feature that enhances the safety of your money.

What Is FDIC Coverage?

FDIC is an independent US government agency providing credit unions and bank deposit insurance. It protects US depositors against bank failure up to $250,000 per account holder. 

Banks pay an annual insurance premium to obtain FDIC membership. The FDIC Board of Directors determines the fee amount, which has a limit and varies from year to year. 

FDIC covers Negotiable Order of Withdrawal(NOW) accounts, Checking accounts, Savings accounts, Money market deposit accounts, Cashier’s checks, Certificates of Deposit (CDs), and Money orders.

Unfortunately, the agency doesn’t cover Exchange Trade Funds (ETFs), Bonds, Individual Stocks, Life Insurance Policies, Mutual Funds, U.S. Treasury Bills, Annuities, and Municipal Securities.

How Does FDIC Coverage Work?

FDIC coverage works by insuring each depositor’s accounts up to $250,000. 

Below is an example: If you have a personal and a business checking account with an FDIC-insured bank, you’ll be covered for $500,000 (up to $250,000 each).

Therefore, ensuring that the bank you deposit your funds is FDIC-insured to qualify for the insurance coverage is essential.

M1 Finance

Is M1 Finance FDIC Insured?

Yes, M1 Finance is FDIC-insured. Although M1 isn’t a bank, they use Lincoln Savings Bank for their banking products like the M1 Checking. Lincoln Savings Bank is an FDIC member; hence, all the eligible M1 Finance deposits qualify for FDIC insurance coverage.

Also, FDIC does the following for the M1 Finance accounts:

  • Paying investors up to $250,000 per account if the bank fails to meet its obligations or becomes compromised in some ways.
  • Examining the bank’s assets and setting FDIC insurance limits: Reviewing deposits, loans, and assets.
  • Managing receivership in the insolvency state of the bank.

Conclusively, M1 Finance’s Spend account – a digital banking account with a linked debit card – is an FDIC-insured checking account insured up to $250,000, just like a traditional bank account. FDIC ensures you get back your money even if M1 Finance closes for good.

In a nutshell, the ‘drivers behind this investment platform want you to feel secure and be successful as an investor.

M1 Finance

What Are M1 Finance’s Top Perks?

M1 Finance has various impressive features; where the top ones include the following:

  • Integrated investing, banking, and borrowing
  • Dynamic rebalancing
  • Fee-free investing
  • Retirement Investing
  • 6,000+stocks, ETFs and crypto 
  • 70+ customized pre-made pies or portfolios

Keep reading as we discuss each of the above M1 Finance top features.

1. Integrated Investing, Banking, and Borrowing

Your M1 Finance account allows you to access various investment products and an interest-bearing checking account. Also, it has a portfolio credit line that lets you access revolving credit against your portfolio balance. You can manage your personal finance in one place with features such as low-interest borrowing (without a credit check) and automatic investment account funding.

2. Dynamic Rebalancing

M1 Finance keeps your portfolio balanced. Once you deposit funds into your account, the app algorithm identifies underweight parts of your portfolio and prioritizes them by transferring  the money. That helps you to remain on track with your target asset allocation. On the other hand, upon withdrawal, the algorithm sells the overweight segments of your portfolio first. Or, you can press a button for immediate rebalancing.

3. Fee-Free Investing

The financial services app operates fee-free. It has no commission, account management, checking account, application, or origination fees for borrowing. M1 Finance is mindful of expense ratios to keep investment fund fees low. It even reimburses ATM fees. 

4. Retirement Investing

M1 Finance offers saving, spending, and investment accounts, including three types of retirement accounts: Roth, traditional, and SEP IRAs.

M1 Finance

How Does M1 Finance Function?

M1 Finance works as a financial services app that includes integrated investing, banking, and borrowing. Thus, it allows investors to view their financial status ‘picture’ in one place and borrow to leverage their investment. The low-cost robo-advisor is ideal for self-directed investors and has no account management fees or commissions.

The heart of the M1 Finance account is investing. Your portfolio funding is automatic, where the investment account and M1 Spend checking account are integrated to finance it. M1 Borrow is a credit line against your investment account. M1 Borrow requires your account to be at least $2,000, for the option to borrow up to 40% of the account value.

Since the investment account for M1 Finance is for self-directed investors, the first step is customizing your portfolio with ETFs and stocks (including fractional shares). Alternatively, you can choose a portfolio from among the expert-designed ones. At this point, you must answer questions relating to your financial objectives and select more informed investment plans using M1’s tools.

The app’s ‘Pie’ interface lets you see your portfolio’s balance, helping you assess each ETF or stock’s performance and weight. You can track your investment’s progress using their portfolio analysis tools. That way, you can invest accordingly once you understand your risk tolerance. 

What Services Does M1 Finance Offer?

M1 Finance has basic free membership and premium membership. The primary option offers individual and joint brokerage accounts, including the following:

  • Traditional, Roth, and SEP IRAs
  • A checking account
  • Trust accounts
  • A line of credit

The premium version (M1 Plus) offers you perks at a $125 annual fee on the following products:

  • M1 Borrow: A portfolio line of credit allowing you to borrow up to 35% of your taxable investment balances. The balance should be at least $10,000. Moreover, the credit line has a low variable interest rate, no application, and no credit check. Members obtain a discounted interest rate.
  • M1 Spend: It’s a fully functioning FDIC-insured checking account with no minimum balance and monthly fee. You earn a 1%  Annual Percentage Yield (APY) as a member. Also, you get ATM fee reimbursement (up to four transactions) and 1% cash back on debit card purchases.
  • Dynamic rebalancing: A feature that maintains your portfolio when you deposit or withdraw funds. It gives you access to more automated investing optimization features.

How Does M1 Finance Make Money?

M1 Finance makes money in various ways, as outlined below:

  • Order flow payment
  • Short sales interest
  • Interchange fee
  • Cash lending interest
  • Loan interest
  • Subscriptions 

Let’s see how M1 Finance makes money from the above channels.

1. Order Flow Payment  

Systematic trading or High-frequency traders (HFT) make money from M1 Finance placed orders. In exchange, the transaction processing earns HFT a small commission whose part goes to M1 Finance. 

However, the client experiences no impact on order execution as the effect spread is generally lower at high-frequency traders.  Additionally, M1 doesn’t deduct the backend commissions from the client’s trading account. Basically, HFT trades on the user’s trade, making money from the bid-ask spread. 

2. Short Sales Interest

Short sale entails borrowing shares from the M1 Finance platform by traders and reselling them on an open market. They then make money by buying back the shares when their price declines. Traders who borrow shares from M1 must pay interest, another reliable source of the platform’s revenue. 

3. Interchange Fee

M1 Finance users can open a checking account and get a Visa debit card. Thus, they can directly spend money on the platform. The transactions attract a chargeable processing fee, another source of the platform’s funds.

4. Cash Lending Interest

The platform has more than $3 billion in AUM (assets under management). They lend cash balances on their balance sheet to financial institutions such as banks on interest. The interest is revenue to M1 Finance.

5. Loan Interest

The app’s users who meet the platform’s lending criteria can take loans against their portfolio value. Like other personal loan lenders, M1 charges interest on the loan’s outstanding balance. 

6. Subscriptions 

M1 Finance offers a premium membership (M1 Plus), a premium subscription service at an annual cost of $125. It lets you access M1 Finance features such as Borrow, Invest, and Spend.


Is M1 Finance Really Free?

Yes, M1 Finance is free. M1 Finance does not charge any account management fees at the basic account level. However, M1 Plus, which offers additional benefits, costs $125 per year. There are a few fees for miscellaneous services, such as wire transfers or returned mail, but these are not services the average user will use. Regulatory fees from SEC (Securities Exchange Commission) and TAF (Trading Activity Fee) are mandatory even with free robo-advisors.

Is M1 Finance Good for Beginners?

Yes, M1 Finance is good for beginners. They offer a fully customizable portfolio, letting investors choose their investments. However, beginners will be happy to know that M1 Finance also has many pre-made portfolios. These are great for those who like simplifying their investment strategies or newbies who want pre-selected investments. Another reason M1 Finance is suitable for beginners is the low minimum investment. You don’t need thousands of dollars stashed away to get started, making M1 Finance within reach for even the newest investor.

Is M1 Finance Secure?

Yes, M1 Finance is secure. M1 Security uses military-grade encryption to protect account data. They also have two-factor authorization for clients who want another layer of protection. Another way M1 Finance protects clients is through their insurance memberships. SIPC protects investments up to $500,000 (or $250,000 for cash) in case of brokerage liquidation; FDIC protects M1 Spend accounts for up to $250,000.

Which is Better: Robinhood or M1 Finance?

Like M1 Finance, Robinhood strives to be accessible to the everyday investor. They have no minimum investment requirement and do not charge account management fees for their basic accounts. Both offer socially-responsible investing options. Active traders will favor Robinhood due to the opportunity to invest throughout the day. In contrast, those seeking pre-made portfolios and rebalancing for all investments would veer towards M1 Finance. M1 Finance also offers more account types than Robinhood. Check out our M1 Finance vs. Robinhood comparison post for an in-depth look at which is better.

Is M1 Finance Good?

Yes, M1 Finance is good. The platform is ideal for experienced investors looking for low-cost customizable portfolio solutions. It lets you customize your portfolio by creating yours, screening, or choosing from different pre-built ones.

Is M1 Finance Insured?

Yes, M1 Finance is insured. The platform is SIPC-insured, where the organization insures your portfolio’s securities and investment account’s cash. However, the insurance coverage doesn’t include market fluctuation losses. The SIPC insurance protects you from losses incurred from brokerage malfeasance or bankruptcy.  Additionally, their M1 Plus and Checking accounts are FDIC-insured up to $250,000. 

Is M1 a Bank?

M1 is not a bank. Like competitors, Wealthfront and Betterment, M1 Spend is a division of M1 Holdings, Inc. The M1 high yield savings accounts are provided by B2 Bank, NA, and FDIC insured bank. 

The Takeaway: Is M1 Finance a Safe, Legitimate Investing Option?

M1 Finance is a legitimate robo-advisor and self-directed investing platform with many security features to ensure that clients’ data is safe. These security features include 4096-bit, military-grade encryption, and two-factor authorization. Clients are also protected through SIPC, FDIC, and FINRA oversight.

All these features together make it clear M1 Finance takes their security responsibilities seriously.

There are quite a few benefits to investing with M1 Finance. M1 Finance is a good option for beginning investors seeking a free, low-minimum robo-advisor. It also benefits clients who want pre-made portfolios or who value socially-responsible investments.

Also, they offer a lot of value for a free robo-advisor, including diverse account types, portfolio rebalancing, and thousands of stocks and ETFs.

If that isn’t enough to pique your interest, they also offer promotions, like promo codes and special offers.

Overall, M1 Finance provides clients peace of mind with their account security, all while keeping investing affordable. M1 Finance is a strong contender in the robo-advisor market for these reasons and many more.

Disclosure: Please note that this article may contain affiliate links which means that – at zero cost to you – I might earn a commission if you sign up or buy through the affiliate link. That said, I never recommend anything I don’t  believe is valuable

Barbara Friedberg, CEO, Robo-Advisor Pros has an account with M1 Finance.

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Andia Rispah

Andia is an ex-banker and SEO & content expert for financial brands. She helps entrepreneurs launch and grow profitable online publishing businesses.

Leveraging 15+ years of experience in the financial industry, financial writing & SEO, she creates high-quality content that ranks well in search engines and drives affiliate sales, sign-ups, and revenue. Her B.Com in Accounting and Master of Banking & Finance bring an insider's perspective to her work.

Content Takeoff is where she shares insights into the digital publishing business.