After managing multiple savings accounts of his own at various financial institutions, Gary Zimmerman realized there was an easier way to strategically invest the cash portion of his portfolio by utilizing, of course, technology.
The CEO of MaxMyInterest said he added an extra $40,000 in incremental interest income to his portfolio just by managing savings accounts manually.
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"Right now, people are insured [through the Federal Deposit Insurance Corp.] up to $250,000 per depositor per account type per bank charter," Zimmerman explained. "If you open multiple accounts at multiple banks, you can get much more FDIC insurance."
That's the principle behind MaxMyInterest. Max links investors' savings and checking accounts and allocates up to $250,000 above a target set by the investor to the highest-yielding savings account. The next $250,000 are deposited in the account with the next highest yield, and so on.
Max will automatically reallocate the balances in accounts as banks adjust their interest rates so that the maximum insured portion is invested in the highest-yielding account. It also generates a consolidated 1099 statement investors can share with their accountant.
"Clients tend to hold a lot more cash than most advisors think," he told ThinkAdvisor. He pointed to research from Capgemini that shows the average high-net-worth household in the U.S. is holding close to one-quarter of its assets in cash.
"Modern portfolio theory tells you that you should hold 3% in cash or 5% in cash," he said. "That's where theory differs from reality. The reality is that clients like to hold more cash for a whole host of reasons."
For example, a large cash allocation can make clients feel more secure or that they have more control over their lives, he said.
