If you’ve got a lot of cash, think stocks are too risky and believe that bond prices have no where to go but down, here’s an idea: Put the cash in your checking account to work.
You can do it with an innovative, new browser-based program called MaxMyInterest, which was presented this week at the Finovate Fall conference in New York. The idea is to maximize the interest you earn on your cash balances that could be in your checking or savings account.
To get started, you open accounts at up to five online banks that offer the highest interest rates. Then, you give MaxMyInterest permission to allocate your funds from one account to another to optimize the interest you earn.
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The program accesses your account and tells your bank to move up to $250,000 of your cash into another online account with the highest interest rate. It then moves the next amount, also up to $250,000, to the bank with the second highest interest rate and so on. The system monitors the interest rates offered by your banks on a daily basis and automatically shifts your funds around so that you are always optimizing your return. It can only move funds between your accounts. It can't send funds outside of your network of accounts. For this, you will be charged 2 basis points per quarter, based on the balances of the accounts you are optimizing.
If you think you’re not rich enough to make such a strategy worthwhile, you may be wrong. You don’t necessarily need to have millions of dollars in cash. If you are able to put $100,000 into an account that yields 0.8 percent more than a similar account at another bank, for example, over a year you can make $800 more than you would have if you had left those funds in the first bank account. If your balance is $250,000, that’s an additional $2,000. Of course, if you have a cash position of $1,000,000 spread over four bank accounts you could make an additional $8,000 or more.
MaxMyInterest is the brainchild of Gary Zimmerman, a banker who was lucky enough to sell his New York City apartment just before the recession began in 2008. After the sale, Zimmerman had to decide what to do with the proceeds. He couldn’t put it all into one bank account—too much of a risk due to FDIC limits on how much would be insured. (It was $100,000 at the time.) He didn’t want to put it in stocks either, which were falling as the recession got underway. So Zimmerman opened accounts at multiple banks and put just under $100,000 in each.
After opening those accounts, he realized that the interest rates varied significantly from one bank to another. He would sit in front of an excel spreadsheet every Sunday night checking the rates at each account and moving his funds around. “I wanted to put my cash into the banks with the highest interest rates,” says ZImmerman. The process, he says made him an incremental $40,000 over five years.
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But Zimmerman knew he could do better. So he wrote an algorithm which became the basis for MaxMyInterest, to automate and optimize his cash arbitrage strategy.
Zimmerman’s technology is very new and has only just become available to consumers. But it seems there is little to lose by taking steps to maximize the interest you earn, whether that amounts to hundreds or thousands of dollars per year. "The idea is to keep cash safe while earning more in interest. If you're not pursuing this strategy, you're likely leaving money on the table," he says.
—Nikhil Hutheesing (@Nikhil212 on Twitter)
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