Maximizing Yield in a Near-Zero Rate Environment

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To some, the global financial crisis of 2008-2010 may seem a distant memory. But it was almost 11 years ago today that the crisis was at its peak, sending some of the largest banks in the country to the brink of insolvency, while others failed entirely. As lending dried up, the broader economy suffered, leading the S&P 500 Index to decline by more than 50%, a dramatic fall that shook the confidence of an entire generation of investors.

Banks that seemed rock-solid were failing, and the larger the bank, the more complex were its exposures and thus the more difficult it was to assess its safety. It was against this backdrop that I began managing my own cash more actively, in search of greater safety and liquidity.

The Role of the FDIC

In the wake of the Great Depression, President Franklin D. Roosevelt and Congress enacted the Banking Act of 1933, which paved the way for the creation of the Federal Deposit Insurance Corporation. The FDIC helped create a level playing field for banks, backstopping depositors with the full faith and credit of the U.S. Government. The FDIC thus conferred upon bank deposits the same credit risk as U.S. Treasurys — up to a cap — giving depositors confidence that their deposits were safe.  

During the Financial Crisis, the FDIC raised the deposit insurance limit to $250,000 per depositor, per account type, per bank charter, and it has remained at this level ever since. By spreading cash across multiple banks, depositors can avail themselves of even more FDIC insurance coverage, making it possible to keep even larger sums of cash fully insured. 

Maximizing Yield and Safety

At the time of the Financial Crisis, I was working as an investment banker at one of the largest banks in the country and witnessed first-hand the risks that depositors faced, particularly if they were holding more than the FDIC insurance limit in cash. I started looking for a way to keep my own cash safe and liquid. 

Brokerage firms were marketing brokered deposit solutions that they claimed increased deposit insurance coverage, but the deeper I dug into these products, the more flaws I found. I determined that these brokered deposit offerings — in which a bank or brokerage firm sells your deposits to other banks to earn a profit while claiming to offer increased FDIC coverage — all suffered from the same fundamental flaw: the funds all flowed through an intermediary institution, so if the institution selling brokered deposits were to fail, depositors might lose access to all their funds until that institution was bailed out. Put differently, these solutions — marketed as a means of reducing risk — were in fact riskiest in precisely the circumstances that they were designed to help you avoid.

I decided that the best way to keep cash safe was much simpler: keep it in my own bank accounts. I could hold these accounts directly in my own name and spread my cash across multiple banks so that even if one bank were to fail, I’d still have access to funds at other banks while the failing bank went through the FDIC resolution process. No brokers. No intermediaries. Just my own cash sitting in my own bank accounts.

The challenge, of course, was monitoring all of these accounts. I found myself logging into multiple bank accounts each month to monitor balances and rates. Accrued interest pushed me over the FDIC limit, and as time went on, I noticed that banks were changing their rates all the time, meaning that I found myself having to constantly monitor rates and shift funds from bank to bank to ensure I was getting the best deal. There had to be a better way.

My experience managing cash during the financial crisis led to the creation of MaxMyInterest, a simple cash management solution that fully automates this cash management strategy, enabling anyone to benefit from increased FDIC insurance coverage and higher yields. Max is now used by advisors at more than a thousand wealth management firms with collectively more than $1 trillion of assets under management. Clients using Max typically earn thousands to tens-of-thousands of dollars of incremental interest income each year, automatically. 

How Max Works

Max works by helping you link your existing brick-and-mortar checking account or brokerage account to your choice of higher-yielding online banks. Each bank is backed by FDIC insurance coverage. By spreading funds across multiple banks, you can increase liquidity and FDIC insurance coverage at the same time. And because online banks have lower operating costs, they tend to pay much higher rates than brick-and-mortar banks or brokerage firms, so you can earn higher returns on your cash at the same time.

Opening new bank accounts is now easier than ever. You can open as many accounts as you like, and unlike credit cards, there’s no impact to your credit rating when you open savings accounts. The Max platform makes it even easier, making it possible to open, link, and begin funding new savings accounts in as little as 60 seconds using Max’s patented Common Application. But even without Max, you can pursue this same strategy of opening and managing a portfolio of bank accounts on your own.

Max simply automates the process for you, monitoring interest rates daily. Each month, Max helps your funds flow whichever of your banks is offering the highest interest rates. So not only do you benefit from increased safety and liquidity, you can earn higher yield, too.

The Fed Funds Rate

When Max launched in 2014, the Fed Funds target rate was 0% to 0.25%. You can think of the Federal Reserve as a bank for banks, and so the Fed Funds rate is effectively the rate at which banks can borrow from (or lend funds to) the Fed overnight. Against that backdrop, the average rate paid on savings accounts across the country was a paltry 0.12%. Still, online banks — owing to their lower operating costs — were able to pay higher yield, approximately 0.90% at the time. As a result, depositors who were astute enough to open savings accounts at online banks could pick up an extra 80 basis points, or 0.80%, of risk-free incremental return, simply by being a bit smarter about where they were holding their cash. 

Beginning in December 2016, the Fed began raising rates in earnest. Online banks raised their rates, too, reaching a peak of 2.25%. The banks supported on the Max platform raised their rates even higher, since Max saves them from having to spend money on advertising or customer acquisition. As a result, the top rate earned by Max members reached 2.72%, a rate that enabled customers to earn more on cash than they might pay on a 7/1 adjustable-rate mortgage!

As the Fed has begun to cut rates, the rates paid by online banks also began to decline, but at a slower pace than the Fed rate cuts. Bankers call the relationship between the change in interest rates paid by banks and the Fed Funds rate the deposit beta. At lower interest rates, online bank deposit betas have tended to average around 0.6, which means that for every 100 bps change in the Fed Funds rate, banks only adjust their rates by 60 bps.

At Max, our data suggest that if the Fed were to lower its target range to 0% to 0.25% (as it was following the Financial Crisis), the online banks will still pay approximately 0.80% to 1.00% on savings accounts. So while interest rates may not be as high as they were in 2019 when the economy was booming, savvy depositors can still earn above-market rates on cash simply by paying more attention to where they keep their funds.  

The Yield Curve

We’re living through extraordinary times. The shock of 9/11 pummeled airlines and impacted the economy, but as a country, we rebounded and rebuilt and enjoyed a long bull run that lasted from the Gulf War through to the Financial Crisis. The Financial Crisis prompted a deeper and more prolonged shock to the economy, but the 11-year bull run that has followed generated tremendous wealth, particularly for those who had liquidity and were able to buy at or near market lows. It’s still too early to estimate the impact of COVID-19 on the markets, but at present, it appears that we’re in for both supply and demand shocks, which could result in a prolonged recession that will require fiscal stimulus, not just monetary stimulus. At present, the most pressing social issues relate to health and safety. Financial recovery cannot begin until our epidemiological prognosis improves.

The Role of Cash

In good times, holding cash may feel like a wasted opportunity, as it often barely keeps pace with inflation. But cash is, as it turns out, a remarkably valuable thing to have on hand when markets turn volatile, both because it gives you the confidence to avoid selling at the wrong time, and also the ability to buy at the right time. While you can’t perfectly time the market, it’s possible to be disciplined about increasing your exposure to the market over time through dollar-cost averaging. Removing emotion from the equation enables you to buy equal amounts when stock prices are rising or falling, smoothing out your cost basis. It might feel counterintuitive, but that’s often the winning strategy, enabling you to follow Warren Buffet’s advice to be “greedy when others are fearful.” 

Those who had sufficient cash reserves to resist the temptation to sell, or who bought the S&P 500 during the scariest days of the Financial Crisis, ultimately experienced a more than 300% gain in the decade that followed. While it can be tempting to let emotion sidetrack your long-term plans, holding a large cash cushion can give you the fortitude to remain a disciplined investor and focus rationally on the long term. And if you’re going to hold a cash cushion, you ought to ensure it’s safe and earning as much as possible. If history is any guide, Max will continue to deliver the highest yields in the market on fully-insured, same-day liquid deposits.

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.

Keep Your Bank, Max Your Cash

With Max, earn more on your cash while keeping your existing checking account, or using a brokerage account.

You’d like your cash to earn more — but you don’t want to switch banks.

Enter Max, an intelligent cash management service for intelligent investors. It offers a way to see all your cash at once, while earning you higher yield and obtaining broader FDIC insurance coverage. Max even simplifies tax season, delivering all 1099-INT statements by email in a single password-protected PDF.

Max works with your existing checking account — unless you’d rather open a new checking account or use your brokerage account. Here’s how:

 

Transactional Checking Account

Most investors have a checking account at a bank that they use to pay bills, accept direct deposit of their paychecks or partnership distributions, and manage their household finances. Many Max members link this checking account to Max, because they value Max’s automated optimization that restores their checking account to their pre-set target balance each month..  For example, if you tell Max that you wish to keep $30,000 in checking, but Max finds only $22,000 at the time of your monthly optimization, it will pull $8,000 from savings to bring you back to your target balance of $30,000.  Similarly, if Max finds excess cash sitting in your checking account, it will automatically be swept to your online savings accounts, where it can earn more. We typically advise that clients set their target checking account balance to be slightly higher than their monthly working capital needs, to ensure an ample cash cushion.

 

Separate Checking Account

Some Max members elect to open a new checking account reserved specifically for Max. They move into this account any funds they wish to optimize, link their online savings accounts, and start optimizing. Often they set a low target balance on this checking account, since they don’t plan to use it for any purpose aside from Max.

This setup functions much like a separately managed account, allowing members to cordon off a specific amount of cash to be optimized, separate from the other cash in their portfolios, and not impacted by their daily transactional activity. They can view and manage this cash from the Max dashboard, and when they need to access this cash, they can move it back to the checking account using Max’s Intelligent Funds TransferSM feature, or wire it elsewhere directly from their online bank accounts. It’s easy to open a new checking account online, without visiting a bank branch.

 

Brokerage Account

Many people keep a significant portion of their cash in their brokerage account. Max supports bank and cash management accounts at brokerage houses including Charles Schwab Bank and Fidelity. This strategy takes full advantage of Max to garner additional FDIC coverage and higher interest rates on the cash that’s not currently invested. Most brokerage accounts pay less than 0.1% on your deposits, while the Max average is 1.00%. Historically, investors who chose to maintain cash as dry powder, on hand to deploy when market opportunities presented themselves, typically lost out on the ability to earn interest on these funds. With Max, that’s no longer a problem. You can earn dramatically more while keeping your cash liquid and easily accessible, within reach when it’s time to trade.  Since the average HNW investor is holding 23.7% of his or her portfolio in cash, picking up an extra 0.90% of interest income on cash is equivalent to earning an extra 0.21% across your entire portfolio.

Learn more about setting up your Max account or read our one-page setup guide. Have questions? Ask Max Member Services at member.services@maxmyinterest.com.

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.

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 can use something like FilecenterDMS.com to make this process easier as you can sort the documents as you scan with this platform, meaning you’ll know where everything is and where everything should be. 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.

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.

The Race to the Top is On

Screen Shot 2014-12-15 at 9.25.47 AM

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.

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.

Why Cash Is The Overlooked, Underinvested Asset Class

MaxMyInterest founder Gary Zimmerman discusses why investors hold cash with Morningstar's Christine Benz.

MaxMyInterest founder Gary Zimmerman discusses why investors hold cash with Morningstar’s Christine Benz.

Do you hold cash in your portfolio? Of course you do. It’s the universal asset class. Everyone needs some degree of cash to manage their monthly expenses: homes, automobiles, tuition, travel, dining and entertainment. But how much cash is enough cash? Should you hold cash beyond what you need on a monthly basis? And how much are you earning on the cash portion of your portfolio?

For most high net worth investors, the bulk of their portfolios are comprised of domestic and international equities, tax-advantaged fixed income instruments, real estate, commodities and alternative investments like private equity, hedge funds or real assets. Yet today, cash represents a substantial portion of the portfolios of both individual investors and family offices. Most of it is earning next to nothing.

Forbes Magazine contributor Jim Cahn recently cited a study by US Trust that found that “one-fifth of all high net worth individuals (with $3 million or more in investable assets) are holding more than 25% of their portfolio in cash.” This is consistent with our anecdotal conversations with individual investors and family offices. Sure, we occasionally run into investors who hold virtually no cash, choosing to margin securities when they buy a car or pay tuition. But most investors do keep a meaningful cash allocation. One family office we know is 100% in cash – to the tune of $250 million.

For most investors, having a sizable cash cushion helps them manage both personal and portfolio risk. As I discussed in a recent interview with Christine Benz at Morningstar, we all remember the depths of the financial crisis. Most investors prefer to have a cash cushion to withstand economic swings. They also like to have on hand some “dry powder” that can profitably deployed, so that they can, in the words of Warren Buffett, “be greedy when others are fearful.” Cash can serve not only as a hedge, but also as a strategic reserve.

Among the most conservative investors are investment bankers, many of whom hold seven figures in cash. Working in a volatile industry, where layoffs accompany each business cycle, it makes sense to hold a rainy-day fund in cash. Law firm partners are similar. One leading private banker told me his white-shoe law firm clients tend to hold between $1 million and $3 million in cash, with one client holding a staggering $20 million, all earning no more than 0.30%. Whether that reflects inertia or a deliberate allocation doesn’t matter – what matters is how clients invest that cash, to ensure it doesn’t unduly drag down the returns of the entire portfolio.

At Max, we don’t take a view on how much cash investors should hold – each individual is different, and should consult with his or her financial advisor to determine what’s prudent. However, for whatever portion of your portfolio that you’ve chosen to hold in cash, you ought to earn as much as possible on it, while ensuring that it is safe, insured, and accessible when you need it.

MaxMyInterest is a cash management solution that helps investors earn substantially more on their cash, while keeping it safe. Max members are today earning a weighted average 0.89% on their cash, held in their own accounts at leading FDIC-insured online banks such as American Express, Barclays and GE Capital. As interest rates change, Max automatically reallocates cash to help ensure its members benefit from the best rates available. Best of all, Max members need not change the way that they interact with their existing checking account, so direct deposit, bill pay, and access to tellers and notaries remain unchanged.

An incremental 0.80% of return can be meaningful, particularly when compounded over time. Savvy investors know that it’s important to monitor every aspect of portfolio risk and return. With Max, investors can generate incremental return without incremental risk, the holy grail of investing. So, much like you wouldn’t put up with a mutual fund that consistently underperformed the market by 0.80%, no longer should you suffer such a fate from cash.

We’re all busy, and focusing on cash often falls to the bottom of the To Do list. However, Max was designed so that – after a one-time setup – you never have to think about your cash again. You can just sit back, knowing that the cash portion of your portfolio is optimally invested in your own FDIC-insured bank accounts.

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.