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.

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When Your Bank Deposits Aren’t FDIC Insured: Why Deposit Insurance Matters

Understanding FDIC limits can keep your cash safe in the bank.

Understanding FDIC limits can keep your cash safe in the bank.

 

When the stock market experiences choppiness and the global economy teeters, investors wonder about the safety of their money in the bank. In the U.S., we’re fortunate that our cash, with certain limitations, is protected by the Federal Deposit Insurance Corporation (FDIC). This means that as long as you keep your deposits within the limits, your cash in the bank is safe, no matter what happens to the bank.

Here are 5 things to know about the FDIC and your money.

 

FDIC insurance limits

During the global financial crisis that began in 2007, the FDIC limit was raised from $100,000 per depositor, per account type, per institution, to $250,000. This means that a couple can keep $1 million in a single bank: $250,000 in the first spouse’s name, $250,000 in the second spouse’s name, and $500,000 — or $250,000 each — in a joint account held in both their names. If you hold more than this amount in cash, you may want to open accounts at multiple banks.

 

Banks involved

Most U.S. banks are part of FDIC. Those that are will display the FDIC logo on their website and in their branches. If you don’t see it, ask, or check the FDIC website.

 

What’s covered

Here’s the list of accounts that the FDIC insures at banks: “checking, NOW (Negotiable Order of Withdrawal) accounts, savings accounts, money market deposit accounts, and certificates of deposit (CDs).” Note that money-market funds are not a bank product and don’t fall under FDIC protection. What’s also not covered are any investments you hold: “stocks, bonds, mutual funds, life insurance policies, annuities, or municipal securities, even if you purchased these products from an insured bank or savings association.”

You can check to what extent your own accounts are covered with the FDIC’s Electronic Deposit Insurance Estimator.  

 

Ways to get more coverage

Some banks hold multiple bank charters and may spread your deposit accounts across these charters. That will increase the amount of FDIC insurance you are entitled to claim. Ask your bank about this.

 

Managing your accounts

If you hold a significant amount of cash, spreading it out among different institutions in FDIC-insured parcels is a smart way to increase your amount of deposit insurance. Be sure to monitor the accounts so that your cash doesn’t exceed the limit at each bank. Max handles this automatically for members. Learn how Max can help you optimize your FDIC-insured cash.

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5 Tips for Making the Most of Tax Time

IRS-hqYou’ve been smart all year long about how you organize your finances. Now that tax season is here, make sure you’re doing everything necessary to take advantage of your efforts during the past year. Here are our best tips for preparing for April 15th:

– Keep It Together

Prepare a file, and into it put all tax-related documents — W-2s, 1099s, and other forms — as they arrive in the mail. When you’ve collected all the forms you receive from employers, banks, and funds, sit down and scan them to your computer as PDFs (or take a photo of each on your smartphone) so that you can easily send them to your accountant. You’ll then be able to store them on your own computer or on a cloud storage service like Dropbox so that if you get audited any time in the next 7 years, you’ll have the necessary documentation close at hand.

– Know Your Interest

Gather 1099-INT statements, which detail the interest you’ve earned, for all your bank and brokerage accounts . If you’re a member of MaxMyInterest.com, you can use the new Consolidiated Tax Reporting feature to automatically gather all your 1099’s for you and put them into one password-protected PDF that you can print or forward to your accountant.  Couldn’t be simpler.

– Watch Your Calendar

If you are required to file taxes for different states or municipalities, such as New York City, you may have to keep notes on which days you are physically present in each place. To document these moves, be sure to keep taxi receipts, airplane boarding passes, and other papers that can prove where you were on a specific date. Scan them in case your accountant needs them in an audit.  For a more streamlined 21st century solution, try MileIQ, an innovative iPhone/Android app that leverages the GPS in your phone to automatically track your location and deductible mileage in an IRS-compliant manner.

– Track Your Deductions

If you’re entitled to take deductions for items such as mortgage interest or money you’ve contributed to a 529 college-savings account, be certain your accountant has the right documents to provide proof. Check your returns prior to filing to ensure these deductions have been properly incorporated into your returns.

– Make Charity Count

Keeping a spreadsheet of your charitable donations during the year helps at tax time.  You can maintain a running tally to ensure you’re donating your target percentage of income. Your accountant will also need printouts or digital copies of receipts for your donations. Don’t forget to include anything you’ve donated in kind, from school auction items to charity thrift shops.

Tax time is also a good time to review your investment strategy.  Were you careful about tax loss harvesting to match capital gains and losses?  Are your dividends and interest producing regular cash flow that you might want to divert into other investments?  If you’re not earning at least 1.00% on the cash portion of your portfolio, you might consider a service like MaxMyInterest.com to help generate incremental yield while keeping your cash FDIC-insured.

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American Express Raises its Online Savings Rate to 0.90%

What would you do with an extra 0.89% of interest each year?

What would you do with an extra 0.89% of interest each year?

Continuing the trend of rising interest rates, this morning American Express increased the rate it offers on its Personal Savings accounts to 0.90%. This represents American Express’ second rate increase in two months.

Online savings rates have been rising rapidly since December, with several banks now offering more than 1.00% in interest on FDIC-insured bank deposits. For investors, this represents a compelling opportunity to finally earn more on the cash portion of their portfolios after five years of near-zero interest rates.

This stands in contrast to the Bankrate.com national savings average, which remains stuck at a paltry 0.09%. Brick and mortar banks have much higher overhead costs than their online peers, which contributes to their lower rates. It’s the same dynamic that makes online shopping compelling: just as a toy might cost less at Amazon.com versus buying that same item at Toys-R-Us, online banks are able to pass on the efficiency of transacting online to their depositors by paying higher rates. Since online bank deposits are FDIC-insured in the same manner as brick-and-mortar bank deposits, depositors can rest easy knowing that their deposits at leading online banks such as GE Capital Bank, Barclays, Ally Bank and American Express are just as safe as deposits at their brick-and-mortar peers, so long as total deposits are held below the FDIC-insurance limits, currently $250,000 per bank, per depositor, per account type (individual and joint accounts count as separate account types.)

With Max, we’ve created a system that helps depositors mange their cash more intelligently. Our members link their existing brick-and-mortar savings accounts to a number of higher-yielding online bank accounts. Max then monitors changes in interest rates, and periodically tells your banks to transfer funds between your own accounts so as to maximize yield, even as interest rates change. By default, Max also helps keep your cash below the FDIC insurance limit at each bank, so that you know that your cash is safe. And with Max, there’s no change to the manner in which you interact with your existing bank – direct deposit, bill pay, and access to tellers and notaries remain unchanged.

With American Express’ latest rate increase, Max members are now earning a weighted average 0.98% on cash – that’s 0.89% more than the national savings average, and 0.97% than the yield on most money market funds. Today, many members are earning as much as 1.05% on their first $250,000 being optimized by Max.  And as rates continue to rise, Max members benefit automatically.

What could you do with an extra 0.89% of ‘found money’ each year? Save it, of course, and let it compound. Or donate it to your favorite charitable organization. Or take your family on a nice vacation. You can try out the Max calculator to see what this might mean for you.

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The Race to the Top is On

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Max members are currently earning dramatically more than the national savings average.

Barclays became the fourth bank in the past week to raise the interest rate it pays on online savings, raising its rate from 0.90% to 1.00%.  With this rate hike, savvy investors are able to earn 100x as much as they could in uninsured money market funds, or 10x more than they could in most brick-and-mortar bank accounts.  With individual investors holding $900 billion in U.S. money market funds today, were all these investors to use Max instead, they could earn a collective $8.9 billion more each year in interest income.

But what does that mean for an individual investor?  An extra 0.90% of yield amounts to an extra $900 per year per $100,000 of cash on deposit.  This is effectively found money, and it can be put to good use — reinvested to compound over time, contributed towards tuition or a family vacation, or donated to a charitable cause that’s meaningful to you.  You can use the Max calculator to see how much more you could earn.

Certainly, there are other ways to earn higher yield, but most involve locking up money for longer periods of time, or taking on risk.  With Max, cash is spread across your own FDIC-insured bank accounts at leading financial institutions such as Barclays, GE Capital and American Express, ready for you to access it when you need it.  Max tracks changes in rates for you, helping your cash move to where it can earn the highest yields, automatically.

You can learn more at www.MaxMyInterest.com.

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Online Savings Rates Continue to Rise

Max members are continuing to benefit from a rise in rates offered by online banks.

This morning, American Express increased the interest rate paid on its Personal Savings online accounts to 0.85%.  This comes on the heels of GE Capital Bank‘s rate increase on Monday.

For Americans with substantial cash balances, the ability to spread deposits across multiple online banks helps keep larger amounts of cash safe via increased FDIC insurance, while dramatically increasing yield vs. other alternatives, such as brick-and-mortar savings accounts or money market funds.  Max makes it easy to manage a basket of these accounts, monitoring changes in interest rates and automatically reallocating cash among your accounts to seek the best combination of yield and FDIC insurance protection.  Max charges a small fee of 0.02% each quarter for this service.

For months we’ve been predicting a rise in rates, and in turn a widening of the spread between the yield available from the network of online banks supported by Max vs. the national savings average.  Max members are now earning a weighted average 0.93%, as compared to the Bankrate.com national savings average of 0.09% or most money market funds that yield only 0.01%.

More information about Max can be found at MaxMyInterest.com.

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5 Things You May Not Have Realized About MaxMyInterest

The MaxMyInterest booth at the Finovate conference in New York on September 23, 2014.

The MaxMyInterest booth at the Finovate conference in New York on September 23, 2014.

Is Max too good to be true? How can I earn more money on my cash without paying expensive fees, being subject to stiff restrictions on transferring my money, or maintaining a high minimum balance?

We heard many versions of these questions last week when we presented Max at Finovate. Banks, brokerages, and RIA platform representatives all came over to meet us, as well as individuals eager to try out Max for themselves.  We were excited to receive some terrific press coverage from journalists who really grapsed what we’re doing.  To address some of the questions we recieved, let’s dispel a few Max myths:

Max is not a bank, and Max never takes custody of your funds. Many customers have asked how they can send us money to optimize. With Max, you don’t send us any money.  Your money remains in your own bank accounts, automatically moving between your own accounts to where you can earn the best yield each month.

There is no minimum balance required to use Max. These are your accounts, so the only minimums are those imposed by the banks. The online banks in our system have account minimums of either zero or $1.00.  They charge no monthly fees.  The only minimums that might apply are those imposed by your own checking account; often banks will require that you keep a minimum of $1,500 to avoid monthly fees.  But Max does not impose any minimum balance requirement.

There are no incremental transfer fees associated with the monthly optimizations. Every three months, Max charges a simple fee of 0.02% on the balance that is being optimized in your linked online savings accounts, for a total of 0.08% per year. This works out to approximately 10% of the gain that most members can expect by using Max, while our members keep the remaining 90% of the gain. We don’t charge a fee on the money that’s in your checking account.

There is no term to the deposits. These are savings accounts, held in your name, to which you have daily access. The rates offered by these online banks are typically better than even a 5-year CD at most brick-and mortar banks.  These rates are so good simply because the online banks don’t have to pay for the costly overhead of branches.  This saves them ~1.50%, and they’re passing on roughly half of these savings to depositors in the form of higher rates That’s why most Max members today are earning approximately 0.90%, which is about 0.80% higher than the national savings average and almost 0.90% higher than the yield on most money market funds.

Max keeps you optimized automatically. Max doesn’t just tell you what you need to do to earn more on your cash; Max does it for you. The Max system is fully automated, so you set it up once and then Max does the rest.  Max monitors interest rates daily, and once a month, instructs your banks to send funds between one another to keep you optimized, maximizing your interest income while staying within the FDIC insurance limits at each bank, and restoring your checking account to your desired balance each month.  You can log into Max at any time and see your balances, view the status of each of these transfers, request intra-month transfers via our Intelligent Funds TransferSM feature, and change settings to customize how Max works for you.  Come tax time, we plan to have in place a feature that delivers all of your 1099s to you via a single PDF, eliminating the hassle of retrieving a separate tax form for each account you hold.

Have more questions? You can reach Max Member Services at member.services@maxmyinterest.com.

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Why Cash, Why Now?

FinovateFall2014MaxMyInterest is presenting at the FinovateFall conference this week in New York City. In honor of the conference, which showcases innovative financial-technology solutions, we’re taking a look at the problem that Max solves: people are not earning enough on their cash in the bank, and they’re taking more risk than they’d like by not staying under the FDIC limits on their bank accounts.

Cash makes up a reported 40% of Americans’ holdings — far more than most asset-allocation models would recommend. With the stock market at an all-time high, why are investors holding onto so much cash?

There are several logical reasons why people would choose a more conservative asset allocation, yet in doing so they’ve missed out on a stock market rally which has been going strong for more than three years.

Some investors feel the market is overvalued and are waiting until stock prices fall to buy more.  They remember the tremendous buying opportunities that existed at the depths of the financial crisis. Investors who had “dry powder” — cash on the sidelines available to invest — were able to triple their money simply by buying the S&P 500 Index at the bottom and waiting for the recovery to take hold.

Many savvy investors employ a strategy called dollar-cost averaging, which reduces the risk of market timing by taking a fixed amount of cash and deploying it methodically in equal installments over several days, weeks, or months. This strategy requires holding extra cash, because it takes some time to accumulate the position that the investor ultimately wants to hold.

Investors’ appetite for cash also depends on how old they are. For millennials, who came of age during the 2008 global financial crisis and the recession that followed, the equity markets are viewed to be perilous. Many investors in this age bracket are ultra-conservative in asset allocation and don’t want to own any stocks at all. As a result, they keep a larger proportion of their assets in cash than people their age usually do. According to a recent Forbes article, 40% of millennials favor cash over any other asset class.

Investors approaching retirement tend to hold a larger portion of their portfolios in cash and fixed income instruments — but with interest rates expected to rise, holding long-term bonds could be a losing strategy, so many of these investors have pulled cash from bond funds, hoping to preserve its value better by keeping it in cash.

One investor who’s holding lots of cash is Warren Buffett, whose Berkshire Hathaway has $55 billion in its corporate bank account. Buffett knows that opportunities are out there, and cash gives him the freedom to scoop them up when they become available. As we wrote earlier, Buffett has historically saved up cash when the markets rise, and spent it quickly when the markets fall.  He is perhaps the ultimately market timer.

The trouble with keeping a large percentage of your portfolio in cash is that cash provides little, if any, real yield, often underperforming inflation. Many investors also grapple with the limits of FDIC insurance, which only cover the first $250,000 per depositor, per account type, per bank.  For investors who hold cash in money market funds (as is often the case in brokerage accounts), they are not even covered by FDIC insurance, meaning their cash could be at risk.

For Max members, holding cash on the sidelines becomes less of an issue. Max members are currently earning a weighted-average 0.88% yield on their cash, far more than the national savings average of 0.11% or most money market funds that yield a paltry 0.01% today. Even in this low-interest-rate environment, that means Max members are earning 8 times as much as the average bank customer on cash deposits. While each investor should make his/her own determination as to how much cash to hold, at least via Max, they can rest easy knowing that they’re earning as much as possible on that cash, so that there’s more of it at the ready when the next investment opportunity presents itself.

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Ally Bank Raises its Online Savings Rate to 0.90%

Online Saving Just Got Better With GE Capital's 0.95% Interest Rate

Is a rise in interest rates taking hold?

This morning, Max members began earning even more on their cash, without lifting a finger.

Ally Bank raised the interest rate it pays on its online savings account from 0.87% to 0.90%. Over the next 30 days, every Max member with an Ally Bank account will benefit as their cash balances are reallocated, directing funds to Ally Bank to earn this higher rate. No need to monitor interest rates. No need to login to their online savings accounts or order funds transfers. Max does all of this automatically, in the background, with no user intervention required.

The recent rate hikes by both GE Capital Bank and Ally Bank seem to suggest that the rise in bank interest rates that we’ve long been expecting may be coming to fruition. Since the financial crisis, banks have continuously cut rates to match the decline in bond yields and manage their balance sheets. Investors have suffered. Yet the online banks – most with different business models than traditional brick-and-mortar banks – can put incremental deposits to good use. As rates start to rise, we expect more entropy in rates, along with a widening of the spread between the interest rates offered by online banks vs. their brick-and-mortar peers. This means that it will become all the more important to focus on whether your cash is optimally invested.

Today, our Max members as a whole are earning a weighted average 0.89% on their cash that’s being optimized, automatically. That’s 0.78% more than the national savings average, and 0.88% more than most money market funds. Many members are earning even more, up to 0.95%, FDIC-insured.  You can learn more about Max at MaxMyInterest.com

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Back to School: Every Little Bit Counts

School's back in session, so it's time to take a look at your finances.

School’s back in session, so it’s time to take a look at your finances.

In school you learned how to get the highest score on a test: first answer all the questions you know, then go for partial credit on the harder ones. Your family’s portfolio can work the same way, first focusing on the decisions that will have the biggest impact and then searching for ways to enhance your returns on the margin. Here are three ways to streamline your finances so that your money works harder for you.

 

– Choose ETFs

Picking individual stocks is tough; even the pros often can’t select winners. Statistically, investors who try to bet on individual companies rarely beat the market. But many people keep trying to pick individual stocks because they’ve read the fairy tales about others who have built fortunes on one stock. Unfortunately, unless you invest in a company early on and it becomes a stock-market juggernaut, you are unlikely to amass a huge profit from just one holding.

The more conservative way to invest in equities is to buy low-cost, broad-market ETFs and to hold on to them for many years, dollar cost averaging into your position over time. That way, you diversify your risk among a large number of stocks without trying to time the market, while keeping your costs low.

 

– Avoid high fees

Why do fees matter? This is one of the areas where investors have a chance to make a real difference in their results, regardless of how the market performs. Every dollar you spend today paying fees – on your funds, your bank accounts, or your investment adviser’s services – is a dollar that won’t compound in your portfolio over time. The power of compounding is what makes a portfolio grow in a steady, reliable way for most investors. Fees aren’t inherently bad — what matters is the performance of your investments net of fees.  If you have a stock fund or a financial advisor that consistently outperforms the market, it may be worth the extra fees.  The problem is that with equities, it’s difficult to find someone who can consistently outperform the market by a wide margin year in, year out.  If you’re paying 1.0 – 1.5% in fees each year, that can put a real drag on your returns over time.

 

– Earn more on your cash

There will always be some portion of your portfolio that you choose to keep in cash, typically held in your bank account or in money market funds. If that cash on the sidelines isn’t earning as much interest as it could, you’re leaving money on the table. Just like with high fees, earning little interest on your money in the bank puts a drag on your portfolio — money that could otherwise be compounding over time. MaxMyInterest.com offers an investor-friendly system that helps you consistently earn more on your cash by helping take advantage of the higher yields offered by online banks.  Today, these yields are as high as 0.95%, considerably higher than the national savings account average of 0.11% or most money market funds that yield a paltry 0.01%.  By monitoring for changes in interest rates, and automatically helping your money move to the leading FDIC-insured banks offering the highest rates each month, MaxMyInterest can help you earn higher yields on your cash, boosting the returns on this portion of your potfolio.

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