With Gary Zimmerman, Managing Partner – Six Trees Capital LLC, Founder – MaxMyInterest.com
MaxMyInterest Links Primary Bank Account to Banks with Best Online Savings Rates
MaxMyInterest helps sweep your excess cash to FDIC-insured online savings accounts that offer higher rates than traditional brick-and-mortar banks or money market funds
Gary Zimmerman, partner of Six Trees Capital LLC and Founder of maxmyinterest.com, who graduated magna cum laude from Harvard University with a degree in economics and completed an executive education program at Wharton, was a banker living abroad during the financial crisis of 2008. The international credit crunch forced him to see the vulnerability of having all his money in one bank, a considerable amount of it exceeding FDIC limits. Feeling exposed, he knew he there wasn’t anything to gain by relocating his cash accounts to another big bank, so he went online researching online banks, and he quickly noticed that they too were FDIC insured. At that point, he began the process of spreading his cash among multiple online bank accounts with the best online savings rates. Not only did this lower the all too real risks of holding uninsured cash in the midst of a banking crisis, it also opened the door to considerably better interest rates offered by online banks. In doing this he discovered noted that it only takes about 10 minutes to open an online bank account. This experience was the origin of his idea for what would become Maxmyinterest, a system that makes it easy for individual investors to earn market leading interest rates on the cash portion of their portfolio.
A Solution for Vanishingly Low Savings Rates
Most checking accounts pay either zero or maybe ten basis points— a basis point is one one-hundredth of 1%. “The yields that our clients are earning through the Max system,” says Gary, is approximately 100 basis points or 1%. It’s dramatically more than people are earning either through traditional bank accounts or through money market funds.”
Gary emphasizes that Maxmyinterest operates independently of banks “even though we have relationships with them. We focus on maximizing yield and have no advertising costs, no pay-for-play. This is a purely investor-centric experience .”
Max has created a system whereby a client can open new accounts at some of the leading online banks in the country that are able to pay much higher rates on cash because they don’t have costly brick-and-mortar infrastructure. By removing brick-and-mortar, you also remove a lot of operating cost and, in the case of the banks, it’s about 150 basis points, or 1.5%.
MaxMyInterest Setup & Auto Tune-Ups
The initial setup to becoming a client of Maxmyinterest involves choosing the banks where you’d like to have additional relationships—typically those with the best online savings rates—and then linking those accounts to your core bank or your main checking account
You, the client, simply tell Max how much money you’d like to keep in your checking account and the excess is automatically swept to those higher-yielding accounts that you hold at the other banks. From there, Max monitors interest rates on a daily basis and takes a snapshot of your balances across all of your linked accounts to compare with how your cash is allocated against an optimal allocation model. As Gary describes it, it’s “sort of a set-it-and-forget-it model”.
Security Prioritized Throughout MaxMyInterest
Safety and security are paramount, so Gary states that all transfers occur through ACH, the same technology used by Paypal and all banks; MaxMyInterest itself does not take custody of funds or transfer money.
MaxMyInterest.com makes it easy to safeguard your cash by helping spread it across multiple accounts with the best online savings rates, and keeping balances below FDIC limits, thereby giving you the benefits of the greatest return on your money, along with the safety of FDIC insurance.
Disclosure: The opinions expressed are those of the interviewee and not necessarily United Capital. Interviewee is not a representative of United Capital. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by United Capital.
Steve Pomeranz: A short while ago, I came across an intriguing article in “The Economist” about a new startup that figured out a way to transfer the excess money in your bank accounts to other banks that pay higher interest, all the while allowing you to keep your relationship with your current bank. You keep your checking, and you keep your direct deposits, but you get a better return elsewhere. Sound interesting? I reached out the founder of this new service, and he’s with me today. Meet Gary Zimmerman, he’s managing partner of Six Trees Capital LLC and founder of maxmyinterest.com.
Gary spent considerable time advising funds with more than five trillion of assets under management. To his credit, he graduated magna cum laude at Harvard University with a degree in economics and has completed an executive education program at Wharton. Hey, Gary, glad to have you on the show.
Gary Zimmerman: Hi, Steve. It’s a pleasure to be here.
Steve Pomeranz: In your words, what is the purpose and the benefit to the consumer of using MaxMyInterest, and why did you start this thing?
Gary Zimmerman: Sure. I started the company, or at least the idea for the company began, during the financial crisis. I was a banker and I was living overseas at the time, working for one the big U.S. banks, when the banks fell on hard times. All of a sudden, it became unclear whether some of the banks were going to survive. It struck me that the money that was sitting in my bank account at one of these banks, that was about the FDIC insurance limit, was all of a sudden exposed. I needed a safer place to keep that excess cash. I began looking for ways to spread that cash across more banks so that I could have the benefit of FDIC insurance coverage for all of the cash in my portfolio.
Steve Pomeranz: It’s a long way from seeing the problem to coming up with a solution that you came up with. Describe MaxMyInterest and how it works.
Gary Zimmerman: Sure. When this problem struck me, I was living abroad and, while I needed more bank accounts, it wasn’t as easy as walking around the corner to a local branch to an open an account. I went online and I learned about the online banks and got comfortable with how they worked, and the fact that they were FDIC insured just like any other bank. I began the process of opening multiple online bank accounts, spread cash around, and it takes about 10 minutes at least to open online bank accounts. It’s a fairly simple process. That was really just the origin, was finding a way to keep large amounts of cash safe.
Steve Pomeranz: You had to physically go to these websites and set up accounts and do the transfers, and some of these programs of higher interest rates, they would only last for a period of time, so you had to keep on top of it. I guess that became a daunting task. What are we talking about here in terms of yield? I think the typical checking account is earning nothing. 0.01% or so. What kind of rates do a lot of other banks offer?
Gary Zimmerman: We’ve been in a prolonged low-interest rate environment and the Fed has pursued that policy for very good reasons. It’s been very helpful to the economy. Unfortunately, for investors, it’s been a challenge, especially for people who are reliant on fixed income because yields have fallen so precipitously You’re correct that most checking accounts pay either zero or maybe ten basis points, a basis point is one one-hundredth of 1%. The yields that our clients are earning through the Max system are approximately 100 basis points or 1%. It’s dramatically more than people are earning either through traditional bank accounts or through money market funds.
Steve Pomeranz: While that’s not a lot of money, that’s a heck of a lot better than getting nothing on your money. Something is better than nothing.
Gary Zimmerman: Sure. The way I think about is, if you have a mutual fund that was under-performing the market every year by 80 or 90 basis points, you would care. That would be like a Morningstar, one-star fund. That’s what most everyone is doing today with cash; they’re under-earning their potential every single year with great predictability. What we’ve developed is this system that makes it easy for individual investors to earn leading rate on the cash portion of their portfolio.
Steve Pomeranz: According to the article, it goes deeper than that because what in a sense … You’ve worked out relationships with banks that have excess capital, and for various reasons don’t really need to shed assets, and there’s banks that need more assets in order to make more loans. Tell us about that dynamic.
Gary Zimmerman: Sure. I should clarify, I think the Economist article describes a sort of ideal state of the world. We operate independent of the banks, so we don’t have formal relationships with the banks although we’re speaking with a lot of them. Max operates independently, and we wanted to do that so that we were able to focus solely on the best interests of our clients and make sure we’re maximizing yield for them without many other distractions. There’s no advertising on our site, there’s no pay-to-play. This is a purely investor-centric experience. I think what “The Economist” article was referencing, the fact it’s a false assumption to assume that banks always want more capital. A bank’s job is to originate loans, and various ways of doing that, whether it’s mortgages or credit cards or home-equity lines of credit.
A bank also has to manage risk and a bank also has to manage its balance sheet. Sometimes they want more deposits and sometimes they want less. One way that banks are able to manage their deposit base is by changing interest rates and having customers react to that. The problem is that customers are fairly slow to respond to changes in rate, and with this system through a rate-setting mechanism, banks can have more precise control over how they grow or shrink their balance sheet.
Steve Pomeranz: Some banks, if they have certain excess, they actually get penalized for having too much on their balance sheet. I thought I read that in the article. Is that correct?
Gary Zimmerman: Yeah. I’m not a regulatory expert, but there is a new regulatory ratio that came into effect January first of this year called Liquidity Coverage Ratio. The way the regulators looked at the world, coming out of the financial crisis, they realized that in times of financial stress or perceived financial stress, depositors may not feel comfortable holding balances at banks, if those balances aren’t FDIC insured. The regulators are looking at uninsured deposits as being less stable than insured deposits, and as a result one of the new tests of the Liquidity Coverage Ratio effectively penalizes banks for holding uninsured deposits. We’re certainly starting to see banks trying to figure out how to grapple with this question, and some banks are actively trying to encourage clients to move uninsured deposits out of the bank.
With Max, we look at this as being a solution that could actually be helpful to banks in that regard, as well, because it helps keep client accounts below the FDIC insurance limit.
Steve Pomeranz: There’s an amazing amount going on under-the-hood. We depositors just put our money in and we hope to earn what we earn. There’s so many more dynamics. I’m speaking with Gary Zimmerman, he’s managing partner of Six Trees Capital LLC and he’s Founder of maxmyinterest.com, which is what we’re really talking about here today. It’s a new service that transfers money to accounts at other banks that pay higher interest, and to find out more about this conversation remember to always join the conversation at onthemoneyradio.org. MaxMyInterest doesn’t actually hold any money, is that right?
Gary Zimmerman: That’s correct. We’re not a bank. We’re purely a technology company. We provide a service that helps our clients manage their cash across their own bank account. The key to Max is that we’re not asking people to switch banks. You have a good relationship with your existing bank, you visit the branch, you use tellers and notary services, and you might have direct deposit or bill pay hooked up to your account, that’s a very sticky customer relationship. We think there’s a lot of value in that relationship, but when clients start to hold larger amounts of cash, they might find that they’re not actually using all of that cash on a daily basis, or on a weekly basis.
What we’ve done with Max is create a system whereby a client may open new accounts at some of the leading online banks in the country, that are able to pay much higher rates on cash because they don’t have costly brick-and-mortar infrastructure. It’s really the same dynamic as what drives something to cost less on Amazon versus at Toys “R” Us. When you remove brick-and-mortar, you remove a lot of operating cost, and in the case of the banks, it’s about 150 basis points, or 1.5%-
Steve Pomeranz: That’s a lot.
Gary Zimmerman: …of cost savings That’s a very big difference, and so the online banks today are passing on most of those savings to depositors in the form of a higher rate. With Max, you simply open up a number of these online bank accounts, really your choice, you pick and choose the banks where you’d like to have those additional relationships, and then you link those accounts bank to your core or your main checking account. At that point, you simply tell Max how much money you like to keep in your checking account, and then the excess is automatically swept to those higher-yielding accounts that you hold at these other banks. That’s the initial setup, and then afterward Max monitors interest rates on a daily basis, and periodically, and by default it’s once a month, Max simply by using computers takes a snapshot of your balances across all of your linked accounts and compares how your cash is allocated against an optimal allocation model.
In other words, in an ideal state of the world, how would your cash be allocated across these accounts? The extent of these difference, our systems simply instruct your banks to send funds between one-another to re-balance your account. It’s sort of a set-it-and-forget-it model.
Steve Pomeranz: How does the money actually get transferred? It’s not wired, is it? Because that has an expense to it.
Gary Zimmerman: No, that’s right. All of the transfers that occur through this system occur through ACH, which is sort of like an e-check. It’s the same technology that’s used by Paypal or Venmo or when you pay your utility bill by typing on your checking account number. It’s a nation-wide system that all of the banks use. The transfers that occur as a result of Max are actually being made by your banks. Max itself does not take custody of funds or transfer money.
Steve Pomeranz: I’m confused; is the money pushed from the bank or is it pulled from the new bank as you monthly make these decisions to transfer monies from one to another?
Gary Zimmerman: It’s a little both, it’s a push and a pull.
Steve Pomeranz: Describe that for a second.
Gary Zimmerman: Sure. This system, if you want to visualize it, it’s sort of like a hub-and-spoke system, where your existing checking account serves as the hub, and then you connect your online savings accounts to that hub via these ACH links. Those sort of form the spoke. Picture your checking account in the center, and then a number of spokes leading to your different online savings accounts. If our algorithm determines that money should move from online savings accounts A to online savings accounts B, what it would do is it would first instruct online savings account A to send money to your checking account. And then in the second step that money would move from your checking account to online savings account B. Funds are always flowing along those ACH links that you personally set up and verify yourself.
It’s a very safe, closed system. The only thing that Max is really able to do is to tell your banks to send funds between one-another along those links that you personally established.
Steve Pomeranz: A lot of people have their money in brokerage money market accounts that they don’t actually keep at the bank. Those, of course, are uninsured, they’re considered to be very safe, but they still are not insured by FDIC to the $250,000 level. Does this work within the brokerage environment or is it just from bank to bank?
Gary Zimmerman: You’re right, money market funds are not insured, and today most money market funds are yielding one basis point. That’s 0.01%, so it’s effectively nothing. There’s actually $900 billion of money market funds held by the retail public today earning one basis point. We think the opportunity exists for clients to earn dramatically more with this system. Today, we’ve engineered our system to be compatible with the four largest banks in the United States: City Bank, JPMorgan Chase, Wells Fargo, Bank of America. We receive a lot of requests for us to add capabilities for this system to work with other bank accounts and brokerage accounts, and all I can say is, “stay tuned.”
Steve Pomeranz: I would think you’re going to get a little resistance there, but you keep at it. Keep at it, Gary, it’s important. Talking with Gary Zimmerman. He is the founder of MaxMyInterest, and that’s what we’re talking about: a new way of using technology to get the highest return on your money at various different banking institutions and the like. Remember to join the conversation at onthemoneyradio.org and tell us what you think. We encourage you to let us know how we’re doing because this show is for you.
How does MaxMyInterest make money?
Gary Zimmerman: Our revenue model is highly transparent. We’re entirely investor focused, and so we wanted to make sure we had a very clean and clear business model that everyone understood. Unlike most other online businesses, there’s no advertising on our website, there’s no cross-sale, we don’t sell our member data. We’re purely focused on helping our clients earn the highest yields while keeping cash FDIC insured. In order to have such a transparent business model, our sole source of revenue is that we charge our members, our customers, a fee of 2 basis points every quarter. It works out to about 8 basis points a year on the cash that’s been optimized via the system.
If you think about a typical customer, today the national savings average is nine basis points, on a weighted average across all of our customers, they’re earning 99 basis points. So there’s 90 basis points of incremental yield that’s generated by Max. Our fee is eight basis points out of those 90. Basically, we’re collecting about 9% of the gain and our clients are keeping the other 91% of the gain.
Steve Pomeranz: Is there a minimum balance for this service?
Gary Zimmerman: No, we wanted to make this open to everyone, so there’s no minimum. I know a lot of banks impose minimums, but our view is it’s really none of our business how much money you choose to keep in your bank account. The online banks that we’ve chosen to link to our system all have a minimum balance of either zero or $1, but that’s it. We’ve carefully selected banks that we think have very customer friendly policies.
Steve Pomeranz: All right, this is not just for the wealthy that have over the amount of 250,000 that’s FDIC insured, or whatever the amount is, it’s for any balance?
Gary Zimmerman: We wanted to make it available to anyone. Most of our customers are sitting on larger cash balances, so our customers are mostly people holding hundreds of thousands or millions of dollars of cash, but we also have customers with 20,000 or 50,000. If you think about it, even with $50,000 of cash, this system could help you generate an extra $450 per year of what’s effectively sound money.
Steve Pomeranz: Yeah, someone once told me it’s better in my pocket than in theirs. Right? One final thing. What about security? We’re all worried about security now, especially online, what do you guys do to protect my information?
Gary Zimmerman: That’s extremely important. When we started the company, one of the first things we did was focus on security. In building out our advisory board, we brought Dr. Gary McGraw, who’s the Chief Technology Officer of Cigital, one of the leading software security consulting firms. They do work for almost every major global bank. We brought them in first to advise us on system architecture, and then we brought them in to advise on applied cryptography. I think there are a lot of websites that say they have bank-level security, but what they really just mean is that they’re using SSL encryption.
We’ve taken this several steps further and made sure that architecture of our system, the way the code is written itself, the way that all of the interfaces take place, the encryption of data, was all basically as, or more, secure than any of the banks. There are elements of security that are built into software. There are also elements of security built into the overall structural design of the system because we’re not taking custody, because there’s no real way to pull money out of the system, other than through your existing checking account. It makes the whole system quite safe.
Steve Pomeranz: The website is maxmyinterest.com. I’ve been speaking with Gary Zimmerman. He is the Founder of maxmyinterest.com and, as I’ve said, this is very intriguing, very interesting. I think this is a new way that things should be moving. It’s just been long in coming, so, Gary, I really want to thank you for spending the time with us.
Gary Zimmerman: Great, Steve, thank you for having me.
Steve Pomeranz: And remember, to find out more about this great topic and to hear this interview again, join the conversation at onthemoneyradio.org.