In today’s low interest rate environment, “managing cash allocations to maximize yield” is virtually an oxymoron, as there’s little yield to be obtained with any level of proactive management. However, what’s unique about this upcoming rising interest rate cycle is that as rates rise and do become more appealing, for the first time ever internet and mobile banking are widespread. Which means it’s easier than ever before to open accounts online and move cash around to maximize yield. So easy in fact, that you could simply program a computer algorithm to monitor for higher yielding opportunities, and transfer your cash from one bank account to another.
And that’s exactly what a new FinTech startup has done. Called “MaxMyInterest”, the platform is designed to monitor the available yields from five major online banks, and automatically shift available cash dollars in a manner to always earn the maximal available yield. In addition, the platform can also be programmed to maximize yield up to available FDIC coverage limits (and then shifting the excess dollars over to other banks), effectively automating the asset protection strategy of spreading cash across banks to maximize FDIC protection!
And after an initial launch directly to consumers, MaxMyInterest is now developing a private white label platform for advisors. Dubbed “MaxForAdvisors”, the tool will allow advisors to offer this form of bank account cash management program directly to clients, both to maximize their yields and their FDIC-based asset protection, for a mere cost of 8bps/year (which for many clients will be more than recovered by the process of automatically shopping and shifting to higher yields), while also providing advisors a "Max Advisor Dashboard" to keep track of client cash positions. So in a world where advisors are actively seeking ways to differentiate from robo-advisors, will MaxForAdvisors become a technology solution advisors can use to enhance their own perceived value-add?
The Need For Cash Management Software Tools
With yields on savings accounts and money market funds pegged at near-zero for nearly seven years since the financial crisis, most investors today pay little attention to the return on their “cash” or cash-equivalent accounts. Yet with the recent Fed increase in interest rates, and the possibility that rates could rise further in the coming year, the idea of “proactive cash management” is becoming relevant once again.
However, cash management strategies are different now, as compared to the last time we went through a rising interest rate cycle. After all, the last time the Fed was raising rates, internet banking was more limited, and mobile banking basically didn’t exist (the iPhone had just been invented barely 18 months earlier, and no one knew what an iPad was yet). If you wanted to “shop for yield”, you might at least be able to look up some banking options online, but then you had to find the time to physically go to the bank to open an account and move your money around.
In addition, the financial crisis of 2008 provided a powerful reminder that cash management is not just about shopping for yield and getting a return on your money. Just ensuring you get a return of your money matters as well, and for many affluent investors the biggest concern was just spreading out cash accounts to ensure each would be eligible for its own $250,000 FDIC coverage limit! Yet spreading money out across multiple banks in turn makes the process of cash management even more complex.
Now, however, investors can move money from one bank account to another just using a tablet or smartphone, without necessarily ever even setting foot in a bank.
What Is MaxMyInterest?
The virtue of today’s technology tools it that it’s now possible to do everything from shop for yield, to manage accounts to stay under FDIC limits, using technology from the comfort of your own home! Unfortunately, though, while it’s possible to “easily” move money from one bank to another online, there generally isn’t a good way to manage (or better yet, automate) those decisions across multiple accounts from multiple banks, as each bank’s online tools tend to be focused upon and favor just their own accounts.
Until now, as a new FinTech solution called “MaxMyInterest” is aiming to fill this void. Founded by Gary Zimmerman, a former investment banker from Citigroup and Merrill Lynch and now also the managing partner at Six Trees Capital, the purpose of MaxMyInterest (or "Max" for short) is specifically to automate the transfers of assets across various cash accounts, in a manner that maximizes both the available yield, and stays within available FDIC coverage limits.
In this context, MaxMyInterest is not actually a bank itself. Instead, it functions by first helping to link your existing checking account with up to five online banks – GE Capital, Barclays, Ally, American Express, and Capital One – each of which have their own yields, and their own FDIC coverage limits. (These five online banks are used specifically because they all provide no-fee no-minimum accounts, and are able to handle large dollar amounts moving in/out of the account in a single day.)
Once accounts are linked, Max monitors all the accounts and transfers money between them in a manner that maximizes the available yields while also keeping each account under the FDIC coverage limits.
Mechanics Of The "Max My Interest" Program
To get started with MaxMyInterest, the user must first have a “hub” checking account at an institution that has agreed to work with Max (primarily to allow for easy facilitation of what will potentially be large ACH transfers). Currently the Max platform works with bank accounts at Citibank, JP Morgan Chase, Wells Fargo, Bank of America, First Republic, and SunTrust. Given their desire to work with advisors, a relationship with Schwab Bank is expected to come online soon, and other major bank and brokerage firms will be added in the coming months.
Once a permitted hub checking account is created, the user then completes one common account application through the MaxMyInterest site, which opens accounts at each of the five separate online banks. Once the accounts are opened, the user verifies an ACH link between each them and their own “hub” account. This is done by confirming two “test” deposits from the new online bank account back to the original account. Notably, only the user themselves can see the transaction-level details of the original account – including the size of the verification deposits – which provides an important level of security, as it prevents Max from ever being able to add a ‘rogue’ transfer account (because there would be no way to verify the test deposits).
After the external accounts have been established and linked to the original account, MaxMyInterest is authorized to move funds via ACH transfer. By default, Max checks all the account balances on a monthly basis (though the system can be prompted manually to rebalance at any time), to see if funds should be moved. Reasons for a ‘rebalancing’ transfer might include: because there is idle cash in the hub account; because another account now offers a higher yield; or because one of the accounts has grown above the $250,000 FDIC limit and needs its ‘excess’ transferred to another account. To avoid significant overallocations about the FDIC limit, MaxMyInterest targets an account balance of “only” $249,500 to be held in any account, to ensure that a months’ worth of interest still won’t put the account over FDIC limits (and if/when/as interest rates rise, the target funding level might even be lowered to provide more leeway).
If the account owner needs to take a withdrawal from the accounts, the request is submitted via MaxMyInterest, which automatically draws the funds from whatever has the lowest interest rate, and moves the cash to the hub account where it can be used/withdrawn/spent. Given that an ACH transfer typically takes 2 business days to clear, though, clients should recognize that there may be an extra step and slight delay for urgent cash transfers (although in theory funds could be withdrawn directly from the online bank account, or moved via a same-day wire transfer if truly urgent). It’s also important to bear in mind that under Regulation D, savings accounts (of the type that are used in all the partner online banks) can only facilitate six transfers per month, though for someone only taking occasional withdrawals this should not be an issue (and MaxMyInterest’s regular rebalancing optimization would typically only trigger one transfer per month).
At the end of the year, to facilitate tax reporting, MaxMyInterest provides a consolidated Form 1099-INT with details of the taxable interest from all the various accounts. Notably, the system is currently designed to work only with taxable checking/savings accounts, and not any form of retirement account.
Managing Multiple FDIC Coverage Limits Across Multiple Registrations
For higher net worth clientele, where managing FDIC coverage limits can be a pressing issue, MaxMyInterest effectively allows someone access to an extra $1,250,000 of FDIC coverage. This occurs because the $250,000 FDIC coverage protection applies separately for each bank, and so by spreading $250,000 to each of the five different partner online banks, the total coverage is $250,000 x 5 = $1,250,000 (in addition to the $250,000 of FDIC protection that would apply to the hub account as well).
Notably, though under FDIC coverage rules, the limits are actually much more expansive for a married couple. Each spouse is eligible for $250,000 in coverage for an account in his/her own name (so $250,000 for an individual account for husband, and another $250,000 for an individual account for wife), and a joint account is eligible for another $250,000 per owner. Thus, a couple can actually protect $1,000,000 in total account balances, by having a $250,000 account for husband, a $250,000 account for wife, and a $500,000 joint account (all of which are covered).
Accordingly, in the context of MaxMyInterest, a couple looking to protect accounts under all three registration types can actually create three different Max accounts – one to handle the accounts registered to the husband, another to the accounts registered for the wife, and a third for their joint accounts. With the 5-partner-bank accounts, this effectively expands the couple’s FDIC-covered accounts by a whopping $1,000,000 x 5 banks = $5,000,000 (in addition to the separate coverage for the core account).
What Does MaxMyInterest Cost, And How Does MaxMyInterest Get Paid?
For its service, MaxMyInterest charges a “Quarterly Membership Fee” of 2bps/quarter (a total of 8bps per year) for any money held in the various “spoke” online bank accounts. Billing occurs in advance for each quarter (with 10 days advance notice reminder), and the first billing occurs 15 days after the first optimization transfers occur. The Max membership fee is paid from the hub account (not the spokes), although notably the hub account balance is not included in calculating the membership fee in the first place.
In other words, if the hub holds $200,000 in cash and there are three external accounts holding $250,000 in cash each (up to the FDIC limit), billing is based on the $750,000 in cash across the three spokes (not the $950,000 in total account balances), and that 2bpx s $750,000 = $150 quarterly fee amount is swept from the $200,000 hub account.
Notably, MaxMyInterest does not take any other revenue-sharing or shelf space payments from the bank vendors that work with the program. There are no “pay-to-play” or kickback agreements, and MaxMyInterest does not permit the banks access to their full client list to cross-market and cross-sell other services. The Max platform is designed to be profitable solely from the 0.02% quarterly fee on assets it oversees and optimizes.
Privacy And Account Security With MaxMyInterest
Given how close MaxMyInterest is to touching the dollars of affluent investors, security is obviously an important concern. In this regard, MaxMyInterest reports that it maintains its own cybersecurity insurance policy, and as a sign of how serious it takes security the organization’s Advisory Board has several deep experts related to privacy law and software/cybersecurity.
Perhaps even more relevant to the issue of security, though, is simply the fact that MaxMyInterest never actually takes custody of any client assets. Instead, it merely is authorized with access to transfer funds across already linked accounts. And because the authorization of a new account would require the account owner to verify test deposits to the hub account – which MaxMyInterest cannot confirm themselves because they do not receive transaction-level data from the hub account – there’s no way for Max to add a new (potentially unauthorized?) account.
Similarly, the fact that Max can only facilitate transfers between already-linked accounts means that even if their systems were compromised, at worst a hacker could simply transfer funds across those linked accounts – perhaps at sub-optimal yields – but still would have no means to transfer assets out of the closed system of accounts.
In addition, it’s important to recognize that MaxMyInterest does not facilitate inter-account transfers via a wire – which are hard to recover once the transfer is completed, making fraudulent wire transfers a popular tactic for cyber thieves. Instead, transfers occur using the Automated Clearing House (ACH) system, which provides a 60-day window for a consumer to challenge a questionable/fraudulent transfer. In other words, if at worst due to a security compromise the funds were actually somehow transferred to an inappropriate third-party account, there would still be a 60-day window to dispute the transfer and have it unwound.
MaxMyInterest For Advisors And A New MaxForAdvisors White Label Offering
While MaxMyInterest started out primarily as a direct-to-consumer offering for affluent individuals, arguably it’s a powerful value-added “perk” for a financial advisor to bring to the table for his/her own affluent clients as well, like Sage Scholars Loyalty Points or other specialized services for your “A”-tier client segment.
For some clients, the benefit is simply an automated system to ensure that cash is getting its maximal yield. Granted, the return on cash still isn’t much right now, but for those with a substantive cash position (whether saving for a near-term goal, or as an emergency fund), many of the account providers linked to MaxMyInterest are yielding close to 1%, while the national average yield for even a “jumbo” high-balance savings account is barely 0.2%. That spread of 0.8% on a substantial cash balance is certainly nothing to complain about, especially when the cost for Max to proactively manage the cash position is just 1/10th that yield spread. Of course, a client could proactively seek out and transfer money to a higher-yielding account as well, but the upside of MaxMyInterest is for that re-shopping for higher yields (at least across the five core providers) happens automatically.
For ultra high net worth clientele – where even a “small” allocation to cash can easily surpass the FDIC limits of a single bank/account – Max becomes relevant not just for maximizing yield, but as an automated asset protection tool to maximize the available FDIC coverage across multiple financial institutions (and even manage across multiple account registration types amongst those multiple institutions). For highly risk averse clients who are concerned about the stability of the financial system and obtaining FDIC backing, the 2bps/quarter charge is arguably quite modest as a value-add to alleviate client concerns.
Accordingly, MaxMyInterest is developing an advisor-specific platform, dubbed MaxForAdvisors, specifically to help advisors offer the solution directly to clients. Ostensibly, the advisor would not charge anything separate to offer the service to clients, nor pay the fee on behalf of clients either, and instead simply facilitate access to Max and allow the client to directly pay the modest 2bps/quarter fee.
To make the platform more appealing for advisors, though, MaxMyInterest is developing a private “white-label” version that would primarily promote it as a service of the advisor (or even just be “Powered by MaxMyInterest” for a to-be-determined additional cost), and would also provide a "Max Advisor Dashboard" to help the advisor track and monitor the client’s cash positions (including cash balances, recent optimization transfers, weighted average yields beyond earned, and estimated annual income, though the advisor would not have any permission/access to engage in transfers or withdrawals that might trigger custody compliance rules).
For some advisors, just having the Max Advisor Dashboard to help oversee and track client cash positions may be appealing, though in theory advisors might also use the platform as a way to proactively manage for better yields on any cash position otherwise being held as part of the client’s recommended investment portfolio (at least if the advisor can manage not having the cash held within a traditional brokerage account). As MaxMyInterest expands its bank “hub” relationships to other RIA custodian platforms, such cross-platform cash management strategies may become somewhat more practical as well.
And of course, if/when/as interest rates continue to rise in the coming year(s), the MaxMyInterest platform will likely only become even more relevant, as shopping for yield may become more meaningful when yields overall are higher (or perhaps not – it’s also possible that the mobility of money in today’s internet-banking-driven world will actually narrow the spread between the top-yielding bank savings accounts and the rest as “robo-cash management” becomes popular!). Nonetheless, for the highest net worth clientele, the asset protection benefits alone may be worthwhile (even if shopping for cash yield isn’t a concern). And for advisors who are feeling the pressure to differentiate and show a value-add, arguably, MaxMyInterest is a remarkably inexpensive solution to offer in an area where few other automated technology tools are available!
So what do you think? Do you find MaxMyInterest to be an appealing option to consider offering to your clients? Is the primary value-add to you the ability to shop for better yields, to manage FDIC coverage limits, or something else? Please share your thoughts in the comments below!