Why We Launched Max Checking

Max Checking is a high-yield checking account that allows your money to move automatically to your own higher-yielding, FDIC-insured savings accounts at online banks.

The foundation for Max dates back to the financial crisis, when I was looking for a way to keep my own cash safe and liquid amidst broader turmoil in the market.  In the process, I discovered the higher yields available through online banks, and began managing cash actively to keep it fully FDIC-insured while earning the highest yield possible. This became particularly important as banks were cutting their rates during a rapidly declining interest rate environment.

We’ve made a tremendous amount of progress since then, creating what we believe to be the fastest and simplest account opening process in the industry, arranging preferential rates and terms available exclusively to our members, growing assets optimized through the platform dramatically, and attracting the attention of some of the most influential people in asset management.

We’ve also kept our ear to the ground, listening carefully to every one of our members to understand how they use Max to help them earn more on their cash.  We listened even more closely to those who didn’t enroll in Max, to try to understand why, since most people tell us Max is a ‘no brainer.’

Over the years, we heard six main requests from clients — ways in which they’d like to be able to use Max. Today, we’re launching an addition to the Max platform that addresses all six.

Introducing: Max Checking!

Our goal in launching Max Checking is not to get people to switch banks or open a new checking account.  Many people are perfectly happy with their existing bank and are unlikely to switch.  However, at Max, we’re constantly striving to do better for our members, and so we’ve worked hard to create a compelling offering that delivers better rates and terms than pretty much every bank in the country.  And so we do expect that, over time, many of our members will start to use Max Checking for more of their banking needs. But that’s not why we’re launching Max Checking.

Max Checking was designed to deliver on the promise of helping everyone in America earn higher returns on their cash.  Here are the client requests we’ve heard, and why Max Checking is the answer:

1. Please Support my Bank

When Max launched in 2014, to use Max you had to have an account at one of the four largest banks in the country: JPMorgan/Chase, Bank of America, Wells Fargo, or Citibank.  This was a logical place to start, since these four banks represent 37% of the nation’s deposits.  Over the years we added support for more banks, and now can support customers with checking accounts at 20 of the largest banks and brokerage firms in the country.  But with more than 6,000 banks in the country, not to mention credit unions and brokerage firms, we knew we could do better.  With Max Checking, you can now benefit from some of the highest yields in the country regardless of where you bank or invest.  Simply open Max Checking in 60 seconds and you can then link all of your existing bank and brokerage accounts to Max Checking so you can earn more no matter where you bank or invest.

2. I Want to Link Max to my Savings Account, not my Checking Account

Max’s core architecture originally required that you link your existing checking account to Max.  But many of our members wanted to link Max to their savings accounts instead.  Now, you can link your savings, brokerage, or checking account to Max Checking and start earning more.

3. I Want to Link Max to Multiple Accounts

Many of our members have multiple banking relationships.  Max’s existing architecture required that you pick one bank to link to Max as your ‘core’ checking account, but we saw many of our members using Max to move funds from one bank to another.  With the launch of Max Checking, you can now link multiple checking, savings, and brokerage accounts at multiple financial institutions, so Max can help you earn more on all of your cash, regardless of where it currently sits.

4. I Want to Earn More but Don’t Want Max Sweeping Funds in/out of my Main Checking Account

Max was originally designed for households who saw no distinction between checking and savings. Over the years, we’ve come to know many people who are saving for a specific purpose, and who prefer to allocate a discrete amount of cash into savings to earn more, without touching their checking account.  With the launch of Max Checking, you can now earn more on savings without Max sweeping funds in/out of your existing checking account, so you’ll have even more control over your funds.  Simply make a deliberate allocation of cash to your new Max Checking account and from there, Max will automatically move excess cash to your even-higher-yielding online savings accounts.

5. I Like the Idea of Max but Don’t Want to Share my Credentials

Early on, many prospective Max members were concerned about sharing their login credentials with Max. That’s understandable. With Max Checking, it is now possible to enroll for Max, open up a new checking account and four high-yield savings accounts with preferential rates without ever typing in a bank login or password.  You can even fund your account by wire if you choose, but even if you fund by ACH, Max will never be privy to your bank login credentials.  

With the Max Common Application, we’ve made account opening simple, so you can open multiple bank accounts using a single form without logins, passwords, or the trial deposits that many people have come to associate with online banking.  Faster, simpler account opening.  More FDIC insurance coverage.  Higher rates.  That’s the power of Max!

6. I Want to use Max but Don’t Want to Pay Any Fees

From Day 1, we’ve been committed to our members’ privacy and security. As part of that commitment, we’ve sought to avoid any conflicts of interest. So unlike many websites that offer their products for ‘free,’ only to monetize your data in the background, we don’t sell your data, we don’t accept advertising or referral fees from banks, and we don’t cross-sell other products. 

To cover its costs, Max charges a nominal membership fee to its members. Membership costs just 8 basis points per year, or $80 per $100,000 of cash, which is half of what a typical money market fund charges, yet Max delivers greater liquidity and higher yield.  The higher yield available exclusively through Max often far outweighs our membership fee. Max also includes many additional features such as easier account opening, automatic monthly optimization, one-click funds transfers, and consolidated tax reporting.

Still, we wanted to find a way to do even better for our members.  So, if you choose to keep larger amounts of cash in your new high-yielding Max Checking account, our banking partner, Radius Bank, will reimburse your Max membership fee, up to $200 per year.  For many of our members, this means that Max will be free!

I’m proud of our team, who has worked creatively and tirelessly to bring these new innovations to market.  And I’m even more proud that as an organization, we’ve managed to stay true to our core mission: your best interest.

To learn more or get started earning more, visit MaxMyInterest.com/MaxChecking.

Read the Fine Print: Not all Cash Solutions are Created Equal

Consider the terms & conditions before handing over your cash to a robo-advisor

The financial industry is abuzz with a bevy of new cash solutions aimed at individual investors. Each offers benefits versus keeping funds in traditional bank or brokerage accounts. But it’s important to read the fine print – not all solutions are created equal.

Fundamentally, people hold cash for two reasons: safety and liquidity. Safety typically refers to the preservation of value or the use of cash as a hedge against turmoil elsewhere in the portfolio. Liquidity is for paying monthly bills, funding capital calls, or for the option value inherent in being able to invest at a moment’s notice.

The latter is why Warren Buffett loves cash so much. Holding lots of cash on hand enables you to be “greedy while others are fearful” and also provides the psychological cushion necessary to weather the ups and downs of the market. This may explain why, according to Capgemini, the average high net worth household keeps a surprising 23% of its investable assets in cash. In the midst of the financial crisis when everyone else was selling, those fortunate or prescient enough to hold cash were buying – and they profited handsomely. Had you bought the S&P 500 at the market trough, you’d be sitting on a 300% gain right now, a once-in-a-generation event in public equities investing.

If the most important aspects of cash are that it be kept safe (i.e., fully FDIC-insured) and liquid (i.e., immediate accessibility), why are these new cash solutions falling short on both fronts?

The answer is in the fine print.

Behind each of these cash-like offerings is an old system of brokered deposits. Invented nearly 20 years ago, brokered deposits were a simple way for banks to offer customers increased FDIC insurance coverage to prevent customers from opening up additional accounts at competing banks. Unfortunately, brokered deposits don’t offer same-day liquidity, and sometimes cap withdrawals at as little as $100,000 per day. And brokered deposits aren’t always fully FDIC-insured since deposit brokers often place funds at banks where you might already have a bank account, resulting in less-than-full coverage. Investors typically need to read the fine print to figure out where their funds are being placed and then mail in a written letter to request that certain banks be excluded from the brokered deposit program. Hardly a transparent or practical option for most investors.

Brokered deposit systems work by taking your deposits and selling them to other banks. The deposit broker collects a high-interest rate from the recipient banks – circa 2.50% in today’s market – then keeps a spread for itself, perhaps 0.20%, and passes on a net yield of 2.30% to the client. While advertised as “free,” this offering isn’t “free” at all. As a customer, you’re paying 0.20% for this service, and if you read the fine print, you’ll find that you are taxed on the full 2.50%, even though only 2.30% of that will ever see its way through to your account. Need access to your money the same day? You’re out of luck – your funds are locked up by the broker and not available until the next day. Changed your mind and want to withdraw all your money? You may not be able to do that either due to withdrawal limits imposed by the broker. And if the originating institution fails, you could lose access to all of your funds until the FDIC resolution process is complete.

What’s shocking about these recent developments are that some robo advisors are RIAs that should be acting in a fiduciary capacity are now co-opting the same tools that broker-dealers have used for years to make money on their clients’ cash while marketing these solutions as “free.” They are by no means free. That spread that they keep for themselves is the fee. It’s just hidden in the fine print.

Investors seeking higher yields on their cash have other options. They can look directly to online banks, or solutions like MaxMyInterest, which helps clients obtain increased FDIC insurance coverage, preferential yields, and same-day liquidity on the cash that sits in their own bank accounts, in a manner that’s fully transparent and free from conflicts of interest.

If you’re sitting on cash, you may be fortunate enough to benefit from the next market dislocation. Before you decide to move that cash in search of a higher yield, I encourage you to do one thing: read the fine print.

Gary E. Zimmerman is the Founder and CEO of MaxMyInterest, an independent, intelligent cash management solution that helps individual investors earn more on their cash, free from conflicts or cross-sell. Visit MaxMyInterest.com or MaxForAdvisors.com for more information.

Top Rate

Max’s top rate of 2.46% is now higher than the highest advertised rate of any bank.

When we launched Max back in 2014, the premise was very simple: online banks have lower operating costs, and so should be able to pay higher yields to customers than their brick-and-mortar counterparts.  The market dynamics were very similar to what we observed in the word of e-commerce: eliminate storefronts, and goods naturally cost less.  In the case of banking, rather than lower prices, online banking makes possible higher interest rates.  Back then, the average Max member was earning 0.88%, or 0.76% more than the national savings average.  Not bad.

Over the years, we’ve found ways to remove many of the frictions that keep people from earning more on their money.  With the Max Common Application, it’s possible to open multiple high-yield savings accounts by filling out a single form.  With our newest platform banks, we’ve been able to eliminate trial deposits, making it possible to link new savings accounts to your existing checking account instantly.  And for clients who join Max through their financial advisors, we can even eliminate form filing.  Imagine opening a bank account without ever needing to type in your name and address.

As rates have risen, Max members are earning even more.  Today, the highest yield on the Max platform is 2.46% — that’s not only higher than the highest nationally-advertised savings rate in the country, but it’s also a staggering 2.36% higher than the national savings average, which stands at just 0.10%.

How do we do it?  By eliminating customer acquisition cost for banks.  Most banks have to pay hundreds of dollars to attract each new customer account, through a combination of advertising and referral fees.  Who pays for this expense?  You, the depositor, by accepting a lower yield on your cash.  By contrast, Max does not accept advertising or referral fees from banks.  Not only does this eliminate potential conflicts of interest, but it also means that you can earn higher yield on your cash.

Take a look at your existing checking and savings accounts, or put a magnifying glass to your brokerage account statement to see how much you’re earning on cash.  If it’s lower than 2.46%, it might be worth taking a few minutes to see if Max could be right for you.

For Advisors, New Technology Brings More Cash Into View

Max brings more cash into view.

Max brings more cash into view.

After eight years of near-zero yields, clients are eager to earn higher returns. Financial advisors want to deliver greater returns without taking on more risk. Advisors are using a novel technology, called Max, to achieve both of these goals, helping clients earn more while growing assets under management.

Which asset class can generate an incremental 0.90% of return, without taking on risk or sacrificing liquidity? The answer lies in a forgotten corner of client portfolios: cash. Most investors are earning little to no interest on their cash held in their bank or brokerage accounts. Since yields have been so low for so long, most financial advisors don’t spend much time thinking about cash.  Instead they focus on higher-return asset classes like stocks, fixed income, or alternative investments.

But how much clients earn on cash can make a significant difference to the overall performance of their portfolios. Here’s the math: the average high-net-worth investor holds 23.7% of his or her net worth in cash, according to the 2015 CapGemini/RBC Wealth Report. Earning an extra 0.90% on that cash means the portfolio as a whole will earn 0.21% more. Because it’s cash in the bank — FDIC-insured — this incremental return is risk-free.

Max is an intelligent cash management service that automatically allocates clients’ cash between their existing checking or brokerage account and a portfolio of higher-yielding FDIC-insured savings accounts at the nation’s leading online banks. Most Max clients are earning more than 1.00%. By contrast, many bank or brokerage accounts pay only 0.01% or 0.02%.

How does Max help clients earn more on cash? By capitalizing on the efficiency of online banks. These institutions don’t have branches, and their lower cost structure allows them to pass along more yield to clients who deposit cash with them.

For financial advisors, offering Max to clients has the effect of bringing held-away cash into view. Over time, clients migrate cash towards Max, where they can grant their financial advisor read-only access to their balances through the Max Advisor Dashboard (a free service for financial advisors.) With the ability to see the cash that clients are holding, advisors can spark a new conversation about portfolio allocation, and often nudge some of this cash into higher-beta asset classes.

Max is not a bank, nor does it provide financial advice.  Max is a technology-driven tool that automatically optimizes a client’s cash balances among accounts at online banks held in the client’s own name. Clients retain direct access to their funds, maintain their relationship with their primary checking-account bank, and can continue to use all bank services like notaries and tellers.

Learn more about the Max Advisor Dashboard and how to invite clients to Max by visiting MaxForAdvisors.com. Or contact advisors@maxmyinterest.com with questions.

The Best Deal in Fixed Income: Online Savings Accounts

Max members are earning approximately nine times as much on cash as the national average.

Max members are earning approximately nine times as much on cash as the national average.

We all know that interest rates have remained low for the last eight years, a deliberate policy on the part of the Fed to keep the cost of funding low to help spur the economy.  This has made it easier for people to borrow money to buy homes, propping up the housing market. It has been good for the stock markets, helping companies refinance high-cost debt and fund share repurchases.  And it’s been favorable to hedge funds as well, reducing the cost of leverage used to boost returns.

Where low rates have had a negative effect is on investors’ cash in the bank, which yields barely anything.

There’s something odd at play this time around, though.  Historically, money market funds yielded more than bank savings accounts.  No longer.  Most money market funds yield a small fraction of what is currently being earned by Max members.

Even more surprising, though, is the fact that term deposits and longer-term bonds are yielding far less than online banks these days.  The yield on the 2-Year Treasury stands at 0.84%, and 5 Year CDs at most brick-and-mortar banks hover around 0.60%. At Chase Bank, a 10-year CD pays 1.05% — and that’s only if you keep $100,000 or more in the CD, and lock up your money for 10 years.

We at Max are puzzled as to why investors would buy 2 Year Treasurys or lock their funds up in bank CDs when it’s possible to stay liquid and earn up to 1.05% on FDIC-insured bank deposits, with no minimum deposit level.

With rates expected to rise, online banks seem like the most logical place to keep cash. As interest rates go up, cash held in these accounts can be expected to follow the upward movement in rates. With Max, cash automatically flows to the banks with the best rates, even as these banks vie to offer the highest yield on savings. This happens while keeping cash safely below the FDIC insurance limits at each bank.

While hedge funds can’t take advantage of the higher yields available through online banks, individual investors can earn significantly more by keeping cash in these online accounts. Learn how MaxMyInterest.com can help with a fully-automated solution that makes it easy to open and manage online bank accounts, all without changing how you interact with your existing checking account.

When Cash Beats Treasury Bonds

The U.S. Treasury in Washington, D.C. (Source: Treasury.gov)

The U.S. Treasury in Washington, D.C. (Source: Treasury.gov)

Certain truths are thought to be self-evident, like the idea that bonds always pay more than cash in the bank. In today’s interest-rate environment, that’s not true. The highest interest Max members can earn is now 1.05%, while the 5-year U.S. Treasury bond currently yields 1.03% and the 3-year bond yields 0.77%. It’s part of the worldwide flight to high-quality assets after the U.K.’s vote to leave the European Union. Many investors are worried that “Brexit” may severely hurt the world’s economy.

What does this mean for investors? Both yields are backed by the U.S. government; the Treasury bond is a government obligation, while Max members are holding their cash within FDIC-insured savings accounts at online banks that are also guaranteed by the government. So the risk profile is the same.

FDIC-insured bank deposits are fully liquid, meaning you can withdraw your money at any time. Bonds, on the other hand, aren’t risk-free; changes in interest rates can cause their prices to rise or fall, introducing what’s known as duration risk. If you buy a bond now and then yields rise, you’re locked in at the old, lower yield, meaning the market will be willing to pay less for your bond and the price will fall.  So unless you hold it to maturity — the entire five years — you’ll lose money.

While buying a Treasury bond means you’re exposed to changes in interest rates, Max members benefit from optimized rates. If the rates on their online savings accounts change, Max will automatically rebalance their funds into higher-earning accounts.

So why would anyone buy Treasury bonds?  Normally, if you’re willing to lock up your money for longer periods of time, you get paid more for taking that duration risk. But not today. At these yields, you can earn more with overnight bank deposits than you can even on a five-year Treasury.  This inefficiency impacts hundreds of billions of dollars of cash held by individual investors.

We built Max to make it easier for individual investors to more effectively manage the cash that they hold, whether it’s in their bank accounts or brokerage accounts.  Max simultaneously delivers higher yield and broader FDIC insurance coverage, with full liquidity, and without switching banks.  

The national average yield on cash held in savings accounts is 0.11%, and many bank and brokerage accounts pay even less. If you’d like to earn more on your cash, or are seeking broader FDIC insurance coverage, or want to keep your funds fully liquid and don’t want to take the risk of investing in Treasurys when it seems like yields have nowhere to go but up (and thus the value of those bonds have nowhere to go but down), keeping cash in high-yielding online savings accounts might be the answer for you.

You can learn more about Max by visiting www.MaxMyInterest.com.

Introducing the Max Advisor Dashboard

For financial advisors, cash is often the forgotten asset class.

For financial advisors, cash is often the forgotten asset class.

High net worth households are holding about one-quarter of their assets in cash. But financial advisors say their clients have 10% of their portfolios in cash. These are the same investors; why the discrepancy?

Financial advisors are charged with managing their clients’ investment portfolios. That includes stocks, bonds, and other asset classes — but it frequently excludes cash. That’s because investors often hold cash across multiple institutions — in their checking account, brokerage account, and perhaps other banks as well — and may only tell their advisor about the portion of their cash they intend to use for investments. They may not realize that they could be earning significantly more on this cash, or that they should be apportioning it to take full advantage of FDIC insurance.

With the new Max Advisor Dashboard, when an advisor’s clients become Max members, it’s now possible for the advisor to see all client cash holdings in one view. This is good for both the advisor and the client.

The client gets all the benefits that come with Max membership, starting with more yield on cash: currently about 1%, or 10 times as much as the national average. Max automatically optimizes accounts for FDIC coverage, and makes sure members always are earning the maximum interest possible across their accounts. The client can optimize accounts on demand, instruct money to move from checking to savings and back, and receive one file with all their 1099-INT tax reports.

For the advisor, the benefit is in being able to offer clients a higher yield on cash than the current rate offered at most institutions. Gaining a view of clients’ cash held in different accounts means that advisors know what funds are sitting on the sidelines in case investment opportunities come up. And advisors can now have a conversation with clients about what the cash is for, and how to make the best of it.

Clients can grant their advisors read-only access to their Max account simply by adding their advisor’s email to their Profile page. In addition to gaining visibility over client cash balances, advisors will find additional materials on the Max Advisor Dashboard, including setup guides, explanatory materials, and a sample email to clients to let them know about this new offering.

Learn more and get started with the Advisor Dashboard now.

Cash: Making the Most of a Turbulent Market

Be wise and optimize: Start with cash.

Be wise and optimize: Start with cash.

With the stock market off to a violent start to the year, many investors are looking to an asset class that performed better than equities last year: cash.

In 2015, most cash in the bank earned, essentially, zero: the average bank savings account paid depositors about 10 basis points, or 0.10%. But those investors savvy enough to put their money in online-bank savings accounts earned up to 1.05% on FDIC-insured cash.

That’s a healthy return, compared to the equities market. In 2015 the Dow Jones Industrial Average fell 2.2% and the S&P 500 declined by 0.7%, according to the Wall Street Journal. Poor returns are contributing to the growing number of pension funds and other institutional investors who are warehousing cash — as much as 10% to 15% of some portfolios, the newspaper found.

For individuals who also feel they should hold cash on the sidelines — either because they’ve adopted a conservative, capital-preservation stance, or because they want to reserve dry powder for market buying opportunities — the difference between 10 basis points and 100 basis points on cash is significant, particularly when compounded over time. It’s even more material when the stock market itself is in decline.

And rates probably won’t stay this low forever. Now that the Federal Reserve finally has raised interest rates, online banks likely will raise their rates more rapidly than bricks-and-mortar banks, because their cost structures are more flexible. Investors who already have online savings accounts for their cash will benefit from this trend. Those who use Max to optimize their cash will see higher rates automatically, when the banks raise them, since Max automatically helps funds flow to whichever banks are offering the highest yields.  

For cash held on the sidelines, it makes sense to earn as much as possible, while protecting principal by ensuring full FDIC coverage. Risk, and the volatility of risky returns, are for other asset classes. Cash is stable, and should churn out a steady yield while staying safe. Learn how Max can help investors earn more on the cash within their portfolios.

The Role of Cash in Investor Portfolios

There’s global-volatility-roller-coasternothing like a little reprise of global market volatility to remind us that stocks don’t always go up.  That’s no reason to panic, of course, but sometimes it’s good to take a moment to reflect on portfolio theory and appreciate why most advisors don’t advocate a 100% allocation to equities.

Here at Max, we are not financial advisors, nor do we offer financial advice. Our goal is simply to help individual investors earn as much as possible on whatever portion of their portfolio that they — or their advisors — have chosen to hold in cash, while keeping it safe.  Today, our members are earning approximately 1.00% yield on their liquid cash, with FDIC insurance of up to $5 million per couple.  This works out to roughly 10x more interest income than paid in most savings or brokerage accounts and 20x more than most money market funds (which, it’s worth noting, are not insured.)

According to the most recent Capgemini/RBC Wealth Management World Wealth Report, 4.7 million high net worth households in North America — defined as those with more than $1 million of investable assets beyond their primary residence — are holding a collective $3.8 trillion dollars in cash & cash equivalents.  That works out to 23.7% of their portfolios.  Yet most financial advisors think that their clients are holding closer to 10% of their portfolios in cash. What accounts for the difference?  It seems as if Americans are more conservative than their financial advisors would seem to believe or advise.  They must be holding cash in other pockets — bank accounts, CDs, and money market funds outside the view of their advisors.

Why so much cash? There are several reasons. Some have to do with timing differences. A law firm partner might, for instance, receive monthly draws from the partnership, but pay estimated taxes quarterly. This results in a build up of cash that must be set aside to pay taxes. But if that cash is sitting in a regular checking or savings or brokerage account, it is likely dramatically under-earning its potential. Other households may be saving for a major purchase, such as a first or second home, or reserving funds against commitments made to invest in private equity funds. Again, cash set aside earning next to nothing creates a drag on the portfolio and represents a lost opportunity to earn on those funds.

Other investors are more strategic about their cash allocation. For some, it’s a hedge (amidst market volatility, where the values of stocks and bonds gyrate, it’s nice to have the comfort of an asset class that acts as a store of value.) For others, cash is an even more strategic asset – a form of dry powder, ready to be deployed when market opportunities present themselves.

For all the talk of cash being a zero return asset class, excess cash in a portfolio can also facilitate outsized gains. Looking back on the financial crisis of 2008-2009, an investor with cash on the sidelines, who was able to bravely dip a toe into the market while others were fearful, could have tripled her money simply by buying the S&P 500. Had that same investor been fully invested, she would have missed one of the greatest investment opportunities of our lifetimes. This past week’s market volatility again reminds us that having cash at the ready can mean the difference between fretting over falling share prices vs. capitalizing on opportunity.

Financial advisors should pay close attention to these statistics. Astute advisors know that they can deliver better financial advice if they have a truer picture of their clients’ assets, objectives, and risk tolerance. Bringing more of a client’s cash into view can help inform this discussion and lead to better investment outcomes. MaxMyInterest.com is one such tool that can be deployed to generate better returns for clients, both directly by way of higher yield, and indirectly, by assembling a pool of cash that’s ready to be deployed when volatility emerges.

Intellectual Horsepower

01-2012-tesla-model-s-fd-1347336745Brains are replacing brawn throughout the economy.

So it’s not a surprise that the last bastion of American muscle, the automobile, is ripe for disruption. This week’s revelation – that Apple is developing an electric car that it hopes to bring to market by 2020 – is a logical, albeit ambitious, progression as Apple seeks to create the ultimate mobile device.

For the past 100 years, cars have been marketed on performance: horsepower, torque, engine displacement, acceleration. But what if user experience is more important? Fundamentally, all cars go from point A to point B. But how enjoyable and productive can that journey be? Perhaps rather than thinking about travel time, we need to think about productive travel time – the car, after all, is just another work space. By the time cars drive themselves (which, according to Google and Tesla, is not far off), a car can be a mobile office. Surely the new Apple car – by the time it is released in 2020 – ought to be self-driving.

The new horsepower, I would argue, is interface. Performance is taken for granted. For years, the leading Android phones have had more horsepower under the hood than the iPhone, with better technical specs across the board. But who cares? Apple has better software and a better-integrated user experience. And it’s Apple’s phones that command premium pricing, not because of the hardware, but because of the seamless melding of hardware and software (and some pretty great marketing too.)

hero-01-LHDTelsa – with its stunning Model S – has captured the heart of Silicon Valley. It encapsulates all the Valley’s values, and has become the car among VCs for all the right reasons: it’s modern, elegant, technologically superior, and changed the rules, disrupting a massive old-line industry in the way that only dreamers can. The vehicle is sleek and its performance metrics impressive, but what impresses people most is the stunning 17” touchscreen console. Picture a giant iPad running Google maps for navigation on top with your Twitter feed on the bottom. It’s an instant sale.

So what does this mean for Ford and GM and the rest of the major auto OEMs? Watch out.

Traditional auto companies have long operated under an assembly-and-test model. Most parts are outsourced. The only major component they build themselves is the engine, and that’s where all the margin is. It’s why the industry has resisted drivetrain innovation for so long. Take away the engine, and you take away the profit. Back in 2000, at least one of the Big 3 automakers had a fuel cell that was the size of a briefcase, ran on hydrogen, and emitted only pure water. Using this fuel cell, the company could have manufactured a zero-emission vehicle. But the project was scrapped, largely because swapping out the engine would mean saying goodbye to 100 years of production efficiency gains – and some $3,000 of profit per vehicle.

Beyond manufacturing, the major automakers are marketing companies. Each brand tells a story, and people tend to buy the brands that most closely reflect their values: luxury, performance, muscle, rebellion, family. But Apple knows a thing or two about marketing. With all the data collected from your iPhone, an expert system may already know precisely which model of car will suit you best, which could lead to dramatic efficiencies in producing just the right product mix for the market at any point in time.

How hard could it be for Apple to go from 0 to 60 in a whole new sector? Can they meet the ambitious goal of producing a world class automobile in 5 years, vs. the industry norm of 7? I wouldn’t bet against it. BMW recently did a study of how a switch to all-electric cars would impact their engineering staff. The result? 90% of engineers wouldn’t be needed. An electric vehicle is so much simpler to engineer, as there are far fewer moving parts, and fewer systems to coordinate. Eliminate spark plugs, pistons, oil, cooling systems, transmission, exhaust, and all the interplay between them and what’s left is a much simpler machine.

Apple exudes engineering prowess and style. And by controlling the car’s operating system, they can create a fully integrated experience. Imagine a self-driving car that reads your iPhone calendar and automatically drives you to your next meeting. And since your iWatch knows how well you slept the night before, the car can evaluate traffic patterns and see if there’s time to stop at Starbucks along the way.

What does all this mean for investors? Carl Icahn’s prediction that Apple will reach one trillion dollars in market capitalization may not be that far off. But the other end of that trade might be just as important: will the incumbent automakers be able to compete?