I talked with Gary Zimmerman, founder of MaxMyInterest.com, on my show on June 15, 2014. Here’s a transcript of our conversation. You can listen to the interview by clicking the audio file at the end of the post.
My guest this morning is Gary Zimmerman. Gary was sitting in his office in Japan where he was an investment banker and started thinking he needed to move some cash around in the United States. This was a number of years ago, and near the financial crisis it wasn’t as easy as it sounds. Here, if you want to cross the street and get a quarter of a point of interest on your savings you can do that, but it’s not so easy when you live abroad. Out of this came a really interesting website that I thought he should tell you about.
In the interest of full disclosure I should tell you I met Gary because he asked our company to do some social media for him, but his story is so interesting that I thought you should hear yourselves. So Gary Zimmerman welcome to the Ilyce Glink show.
Gary: Thanks Ilyce, it’s nice to be here.
Ilyce: It’s nice to have you. The website is called MaxMyInterest.com so why don’t we start there. What is Max all about?
Gary: Sure. Well, Max is a new online service that helps investors automatically maximize the interest they earn on their cash. I think many of us have been frustrated by how low interest rates have been for so long and we thought it was time to finally bring a little bit of transparency and automation to cash –really as an asset class. Many people don’t think of it that way, but a lot of people are sitting on larger balances of cash because they’ve made a very purposeful decision to keep it as cash.
Ilyce: So you’ve got cash in this account. It’s sitting there. I’ve got savings; everyone’s got savings who listens to this show because you know I think that’s so important. And trying to maximize it when the banks pay virtually nothing, you may be losing money with what a regular bank would pay. And your innovation was to go to online banks right?
Gary: That’s right and online banks have been around for about a decade. Only a small subset of the population either knows about them or has used them. They have a fundamentally different business model that doesn’t require them to have brick-and-mortar branches. And as a result their operating costs are dramatically lower than traditional brick and mortar and they’ve been able to pass along those savings in the form of higher interest rates to their depositors.
Ilyce: So, on this show we’ve talked about is ING Direct, which was an online bank. Discover has an online bank. These are the kinds of banks you’re talking about, right?
Gary: Yeah, that’s right. ING Direct was one of the leading online banks and they were acquired by Capital One which many people think of as a credit card company, and Capital One was renamed 360. They are one of the banks we’ve included in our network as well as several other leading brands in financial services today: Barclays, American Express, GE Capital, and Ally Bank are in our system.
Ilyce: These are all FDIC insured banks. And that’s what you are doing here. You are helping people who would need to think about FDIC limits of $250,000 per account so it would have the full range of insurance possible. You are helping them maximize and increase the safety of their cash as well, right?
Gary: That’s right and different people are using our system for different purposes. Some of our members–we call our customers members–some of our members have multiples of the FDIC insurance limit in cash. What they are looking for primarily is a system to help them manage cash across multiple banks so they can help ensure all of that cash stays safe. Other members are interested in earning as much as possible on their cash. So they are interested in the fact that our system presents a dynamic cash reallocation model.
So that as interest rates change our system helps the funds flow from bank accounts with lower rates to bank accounts with higher rates. And like both of those features, we think that delivers a lot of value for them.
Ilyce: So you are sitting in your apartment in Japan and you just sold a place in the United States so you’ve got some cash and you are living abroad so you can’t buy another house with it. What happened after you were in that situation trying to move money around physically and finding it was really difficult? When did you get this idea for MaxMyInterest.com? Gary: Well, I think we all remember the financial crisis perhaps all too painfully and I hit this moment revelation, all of my cash above the FDIC limit at my bank was exposed and if my bank didn’t survive, all of that cash would disappear.
I think the reason that most of us hold on to cash is that we want it to be that safe haven so it’s that last thing we want to have at risk. And so as you mentioned, I couldn’t walk around the corner and open up new bank accounts at brick-and-mortar branches because I was living 7,000 miles away. So I went online and studied the online banks and FDIC insurance and got comfortable, and then spent the day opening a very large number of these online accounts. They only take about 10 to 15 minutes to open. But I opened a lot of them, so that’s how it started. But then as time passed, I noticed that the interest rates at these banks were changing and at the time it was declining interest rate environment so one bank would cut its rate and then another bank would cut its rate even further. My view was that all these online banks, that were FDIC insured, were offering something that was very similar and I thought my money ought to be placed in the account offering the highest interest rates. That seemed simple enough.
Ilyce: Yeah, well I would want my money to earn more for me. We talk on this show a lot about making your money work as hard as it can for you because you are already out there working as hard as you can to earn it. So just sitting around letting it languish doesn’t seem to be the smartest thing in the book.
Gary: That’s right, so I started a very manual process of monitoring interest rates. I wasn’t perfectly disciplined about it, we’re all busy and we all have other things to do, but from time to time I would log into these accounts and check the rates and transfer the funds from one of my accounts to another one of my accounts. And I did this for about 3.5 years. I finally got tired of doing it, but couldn’t stop because I knew this opportunity to earn more on that cash existed. So, I sat down to see whether it might be possible to automate this whole process so that the cash could continue working hard for me without me having to spend my whole Sundays (moving it).
Ilyce: And Sundays for you would be Monday morning in the United States. Many times I would start my radio show during the financial crisis going, “Well, guess what happened between the time the U.S. Stock market closed and Asia opens?”
You came up with this idea, you built the technology using a Chicago-based business which is how we got introduced and now you have this product working in the background, right? The technology just works for you and automatically moves money around with these accounts you set up and then if you need money, what happens? How does it get to your checking account?
Gary: The way online banks work is that you set them up and link them to your checking account. And that’s done with a secure link using what they call trial deposits. It’s through a network called ACH called e-check and basically a link between your online account and your checking account. And all of the transfers that occur through Max occur along those linkages. They are highly secure. The way Max works is that when it finds that money needs to move from one place to another, it simply asks your banks on your behalf to move funds from one of your accounts to another account.
And with Max, you initially tell the system how much you’d like to keep in checking. As Max does its monthly maximization calculations, it makes sure that amount of money is left in checking so if you dipped below your desired target balance, it will pull funds from savings back to your checking to top it up. If you find yourself with more in checking than you intended to have, it will sweep it away to the higher-yielding savings accounts.
Ilyce: So it’s just kind of working in the background making your money work harder for you.
Gary: That’s exactly right. So Max involves a one-time setup. After that it really runs automatically. After that I’ll call our members just to ask them how they are doing and how they are enjoying Max and often what I’ll hear is: “Gary, frankly I haven’t thought about it months.”
Which is exactly what I like to hear, because the whole point is that we all have better things to do with our time, so you can set this up once and sort of set it and forget it.
Ilyce: So what’s nice about this is when you look at the banks, and when they raise their interest rates, which I know you think they’re going to go up andnd we’ve been hearing the same thing from economists all year–although it hasn’t happened yet–you think these interest rates are going to rise and then inside Max, all the interest rates in the accounts rise or fall depending on whatever the bank is going to do. So you automatically move the money around to maximize it, so if interest rates go up you automatically get it in that account.
Gary: That’s right and the online banks that we’ve spoken to agree with our view that the interest rates at online banks will likely rise faster than the interest rates at traditional brick-and-mortar banks.
Ilyce: Because it’s less expensive?
Gary: Well, it’s less expensive and also you’ve heard about how there aren’t enough lending opportunities. The larger banks are already sitting on more deposits than they care to have so they are not looking to attract more deposits. They are quite happy with the deposits they have, but the online banks do have capacity to lend more which means they have the capacity to take more deposits. So we expect that the spread in rates between what online banks and brick-and-mortar banks can pay will actually increase as the rates start to rise.
Ilyce: Well let’s talk about fees because none of this is free but it’s not expensive, it’s actually quite inexpensive compared to what you would pay at a regular bank or what you would get. So why don’t you talk a little bit about that.
Gary: We are all fee-sensitive. What we focused on is how much incremental value can we deliver to our members. And right now a typical member using Max could earn an extra $2,000 per year for every $250,000 they have on deposit with our system. Right now our members are earning a weighted average interest rate of .87 percent. That’s dramatically higher than the national savings average which is .11 percent, or the many money market funds that are yielding .01 or .001 percent. So this is a pretty dramatic difference. And as you know, Ilyce, this differential compounds over time. And it’s very important that you not miss out on these differences.
Ilyce: Hey, welcome back to the Ilyce Glink show. We’re talking with Gary Zimmerman and he’s the brains behind a really interesting new concept called MaxMyInterest.com
If you have cash sitting in a bank account, it makes your cash work harder for you and you earn more money because you are simply working with online accounts, where in the background Gary has invented this technology that moves your money around automatically to maximize the interest. Can you tell us one more time what you charge, and how that compares with other places you might put your money?
Gary: Sure, so our system generates substantially more income for depositors than they might get in other forums. For a depositor with an extra $250,000 income they could expect to earn an extra $2,000 per year. And the more money you have, the more you will earn. We have one guy with so much cash, that the incremental interest he could earn through max will actually pay for his daughter to go to college every single year.
Ilyce: That’s nice. I wish that was me with all that cash sitting in an account.
Gary: The incremental basis point is about 80 points per cent. And .8 percent is substantial when you compare it to what most bank accounts are paying. I think the national savings average is about .11 percent. Most money market funds are 0.01, 0.01 percent, so effectively nothing. And the money markets, many of them are charging .16, .17 percent in fees. So if you compare Max to a money market fund for instance, we might be delivering .88 percent in fees, so the net return is a .08 percent fee which is close to 1 percent, which is much better than any bank.
Ilyce: It’s brand new, so Gary set up a special code for my listeners on WSB Radio. If you go to MaxMyInterest.com, type in WSBRADIO, one word, as the invitation code.