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Computerized Investing > August 19, 2017

Maximizing Cash Returns With MaxMyInterest

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by Michael Halloran

Halloran of MaxMyInterest describes their cash allocation platform.

As interest rates rise, banks change their rates frequently. Investors can get tired of scanning the newspapers for the best interest rates on savings accounts. It’s frustrating when you open an account at one bank, only to discover a short time later that a different bank now has the highest rate.

This is the problem that MaxMyInterest solves. Max is a software platform that allocates cash among high-yielding, FDIC-insured savings accounts to keep cash earning as much as possible while keeping it fully FDIC-insured.

According to the 2015 Capgemini World Wealth Report, high-net-worth American households have 23.7% of their assets in cash. They hold on to a surplus of cash for a variety of reasons: They’re conservative, they hope to capitalize on buying opportunities when the stock market falls or they are setting money aside for a major purchase like a second home.

Because Americans tend to be under-insured, with cash held above the FDIC limits at traditional brick-and-mortar banks, they are also overwhelmingly under-earning. The national average yield on savings accounts is a paltry 0.09%, while the average earned by Max members is 1.21%, with some members earning as much as 1.31%.

Max came out of a simple idea: What if your cash in the bank could earn more, while staying FDIC-insured, and without having to switch banks? Although some banks will always offer higher interest rates than others, it’s logistically challenging for individual investors to follow rates by moving their money from bank to bank, opening new accounts in each as rates change.

Max solves this problem with simple and easy-to-use software. The company’s founder, Gary Zimmerman, was an investment banker working in Tokyo during the global financial crisis that began in 2008. As his bank’s stock fell perilously low, he realized that his own money, held in an account at the bank, was at risk if the bank failed. To mitigate the threat, he quickly opened accounts at several online banks and spread his deposits across them so all his money would be covered under FDIC insurance guarantees. (These government guarantees now insure $250,000 per depositor, per account type, per institution.)

Figure 1. Max Average vs. National Average Estimated Annualized Interest Income

 

While the bank where he worked didn’t implode, Zimmerman noticed that the new accounts he’d set up had different interest rates, which changed over time. Eventually, he built an automated model to determine the optimal allocation of his cash across the bank accounts he held. After realizing that others could benefit from the same solution, he left his job in 2013 to start Max, which automates this process.

Why do online banks offer interest rates that are so much higher than traditional brick-and-mortar banks? Generally speaking, it’s because they don’t have physical branches, and as a result their expenses are considerably lower. They can pass some of these cost savings on to their customers.

How It Works

Max is not a bank and does not take custody of funds. Instead, it works like air traffic control for cash, analyzing the balances in your linked accounts to determine where your cash should be located to earn the highest rate while keeping all your accounts below the FDIC limits. Then, it instructs your banks to move money between your accounts, helping you earn more automatically.

Max runs its algorithm and provides transfer instructions to optimize account balances monthly. However, from time to time, as rates change, Max may send instructions to rebalance assets with greater frequency to ensure that members benefit accordingly. You also can use the Optimize-On-Demand feature to start an optimization whenever you wish.

Max sends transfer instructions, on your behalf, instructing your banks to transfer your funds between one another in search of the highest yield. During the funds transfer process, the portion of your funds that are being transferred may be unavailable for two to three days as they move from one bank to another via the ACH network. All fund transfers are managed by your existing banks; Max never takes custody of your funds.

Beyond initial account setup, there are no ongoing requirements on your time; Max handles everything else. Occasionally Max may recommend that you establish additional online accounts as new online banks emerge and your cash balances increase. The service will only steer you toward banks that pay competitively high interest rates and that offer a satisfactory customer experience. If you want to change your Max settings, such as how much money to keep in your checking account following each optimization, you can do so from your computer, tablet or smartphone at any time.

Figure 2. Optimized Savings Earned on MaxMyInterest.com

 

If you’d like money to move from savings to checking, or in the other direction, you can do so with one click on the Max website. Between scheduled optimizations, you can direct Max to send money from your checking account to your basket of linked online savings accounts or from these savings accounts back to your checking account. Max automatically determines the best accounts to draw the funds from or to deposit the funds into. As stated, all fund transfers are handled by your banks and occur via the ACH network. (There are no fees associated with these transfers.) At tax time, Max members can also receive 1099-INT forms for all of their linked savings accounts by email in a single PDF file.

To set up Max, all you need to do is link your existing checking or brokerage account to Max and then open one or more savings accounts at selected online banks using the Max Common Application. Banks supported on the Max platform include some of the largest online banks in the country, including Goldman Sachs, Barclays and American Express. (If you already have accounts at these banks, you can simply link your existing accounts.) Users choose on-screen which bank or banks to submit an application to. Max then sends data to the banks selected. Some, but not all, of the banks perform a “soft” credit check to confirm the user’s identity. Soft credit checks do not impact your credit rating/score.

Some Max members elect to link their main checking or brokerage account to Max, while others choose to set up a new checking account just for Max, like a separately managed account for cash. Once you’ve set up your Max account and linked your checking or brokerage and savings accounts, click “Optimize Now” to begin earning more. From then on, Max works automatically each month, helping to ensure your cash earns as much as possible.

Max works from any web browser; there is no need to download an app. Max works on any desktop or mobile device, so you always have access to your Max dashboard showing you how your cash is allocated.

Requirements and Fees

Max requires that you link one checking/brokerage account and at least one online savings account to Max to begin your first optimization. You may open and link additional savings accounts at any time.

For detailed step-by-step instructions, download the Max Setup Guide.

Max is currently compatible with checking accounts at Bank of America, JPMorgan Chase, Citibank, Wells Fargo, Fidelity (CMA accounts), Charles Schwab Bank, First Republic Bank, TD Bank, PNC Bank, Capital One, SunTrust, US Bank and USAA. More banks and brokerage firms are slated to be added soon. (You can request that Max add support for your bank.)

Max charges a quarterly fee of 0.02% on the cash being optimized in your higher-yielding online savings accounts, for a total of 0.08% per year. The first quarterly fee is billed after you complete your first optimization. Max does not charge any fees on the cash held within your checking account, and there are no other fees, minimums, transfer fees or service charges. If you cancel your account, no further fees are due, but no credits are given for partial quarters.

For additional questions, visit MaxMyInterest FAQ page.

MaxMyInterest

Price: 0.08% of optimized cash per year


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