Wealthy households keep 27% of their assets in cash. A new checking account aims to help you make the most of it
- Research shows that wealthy investors have ramped up their cash allocations in light of market uncertainty.
- But as the Federal Reserve lowers interest rates, it can be a challenge to find the best return on those balances.
- One company is adding a new checking account to help investors find the highest interest rates for their money.
If you want to know where the wealthy prefer to put their money, you might be surprised to find out it's in cash.
A Capgemini report found that cash surpassed equities for high-net-worth individuals as their No. 1 asset class in the first quarter of 2019. The reason: market uncertainty.
In North America, those wealthy investors had 27.1% of their assets in cash while 26.3% was in equities.
Today, a cash management platform company named MaxMyInterest is launching a new checking account to help both individual investors and financial advisors make the most of the interest earned on that money.
Called Max Checking, the account offers 1% annual percentage yield. In addition, the feature also provides a debit card with free ATM access internationally. The account, which was created with Radius Bank, also comes with no fees or monthly minimum balance.
The checking feature works with MaxMyInterest's existing cash management product, which works to help consumers supplement the bank accounts they already have with online savings accounts that will get them a higher yield.
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It works to regularly monitor interest and automatically reallocate your cash so that you're always earning the most interest possible, according to MaxMyInterest CEO Gary Zimmerman. Today, that's as much as 2.28% APY.
Notably, MaxMyInterest never touches any money because it's not a custodian or an intermediary. Instead, a customer's money stays in their bank accounts that they hold in their own name.
"Max sort of functions like an air traffic control tower looking over your bank accounts and monitoring rates and telling your banks when to send money between one another," Zimmerman said.
The new checking feature is aimed at expanding MaxMyInterest's reach. Previously, consumers had to have accounts at one of the 20 large financial institutions with which the company was working.
With Max Checking, the company can now link to any combination of checking, savings and brokerage accounts.
In addition to higher rates, the company also offers higher levels of FDIC protection, according to Zimmerman. That can be as high as up to $2 million per individual or $8 million per couple.
FDIC rules typically cover individuals for up to $250,000 per investor, per account type and per bank charter.
Because MaxMyInterest currently supports eight online banks, according to Zimmerman, that gives an individual up to $2 million in coverage. A spouse or significant other would also get their own $2 million in coverage for their accounts.
Plus, because the FDIC considers joint accounts as a separate account type, they could get up to $500,000 in coverage per account over eight banks, for as much as $4 million, Zimmerman said.
The eight banks include Ally Bank, American Express, Barclays, Comenity Direct, Marcus by Goldman Sachs, Radius Bank, Sterling National Bank and UFB Direct.
The company does not sell its customers' information or cross-sell with other products.
While the checking account has no fee, MaxMyInterest does charge 2 basis points per quarter for its service. For $100,000 of deposits, that amounts to $20.
I definitely like the idea of them helping you get the best rate without having to work for it. On the other hand, as always, you need to be aware that there's a fee for that service.Arielle O'Sheabanking expert at NerdWallet
Those fees are about half as much as what a money market fund charges, Zimmerman said. Unlike money market funds, MaxMyInterest offers same-day liquidity.
"I definitely like the idea of them helping you get the best rate without having to work for it," said Arielle O'Shea, banking expert at NerdWallet. "On the other hand, as always, you need to be aware that there's a fee for that service."
You will want to compare how much you're earning to the fees you're being charged to make sure you're coming out on top, O'Shea said.
MaxMyInterest does not have a direct competitor in the consumer market, O'Shea said. But there are other options for higher rates that individuals may want to consider.
That includes high yield online savings accounts, as well as new cash management accounts that are being offered by robo-advisors such as Betterment, Wealthfront and SoFi, she said.
In a lot of cases, those accounts pay rates that are around 2% and are typically fee-free, though it's important to dig into the fine print of the account to make sure you're not paying more than you think you are, O'Shea said.
Instead of using MaxMyInterest, a consumer can instead try to move their money more frequently in pursuit of higher rates. "Administratively, it can be a hassle," O'Shea said.
At the very least, you should check your accounts every six months to a year. "You should definitely know how much your interest rate is and whether you can do better elsewhere," O'Shea said.
MaxMyInterest's customers are currently about evenly divided between individuals and financial advisors. The company is working with 750 wealth management firms, most of which are registered investment advisors.