Terry’s Columns The Search for Yield

The Search for Yield

By Terry Savage on July 16, 2019

The stock market cheered signals that the Federal Reserve will cut interest rates this month. There was no complaint from politicians, who see low interest rates as encouraging economic growth. But what about savers? A decision to cut interest rates will send them on a search for higher yields, and encourage some to take risks they don’t understand in order to earn a bit more money.

That’s understandable in a world where low yields — or even negative yields — mean that savers are actually punished for the virtue of having liquid cash and avoiding risk. If you think it’s a problem in the United States, consider Europe, where more than $10 trillion of government bonds carry a negative yield, as do most bank deposit accounts. And even some junk bonds carry a negative yield, demonstrating just how desperate people are to park their money somewhere!

That means savers are actually paying a bank or company to hold their money because it’s the least risky choice available. For example, as I write this, German government 10-year bonds are yielding a negative 0.25%.

In the United States, a the 10-year Treasury bond is yielding 2.12% (after having dropped to below 2% in previous weeks), while the three-month U.S. Treasury bill is yielding roughly 2.16%.

Local banks often offer savers far less interest. According to Bankrate.com, the national average rate on a one-year CD is just 1%.

Chicken Money

Chasing higher yields often involves taking on more risk than you think. There’s a reason I coined the term “chicken money” many years ago. It’s the money that you simply can’t afford to lose — because of your risk tolerance or time horizon or personal financial situation.

That money belongs in short-term, federally insured CDs or money market deposit accounts, or in U.S. Treasury bills, which individuals can buy through TreasuryDirect.gov in minimum $100 increments. (Search columns at TerrySavage.com for a recent primer on how to buy Treasury bills.)

There’s no reason you can’t shop around for the best interest rates on your insured CDs, using online comparison sites for CD rates, including Bankrate.com. But you would still have to open an account at a distant or online bank, organize a wire transfer to get your money into that account, and then repeat the process when the CD matures.

The Easy Way to Find the Highest Bank Rates

That’s what makes the service offered by Max (MaxMyInterest.com) so attractive. It offers savers a rate-maximizing, automatic service designed to transfer balances automatically from your current checking account at any major bank to FDIC-insured online banks that offer higher rates on insured savings accounts.

One you sign up (no minimum required), Max works quietly in the background, keeping an eye out for changes in interest rates. Once a month, Max’s computers analyze your balances to determine whether your funds could be more optimally allocated among insured online accounts they have helped you open. If Max sees an opportunity for you to earn more, Max instructs your banks to move funds between one another.

Set-up takes only minutes — linking new accounts to your existing bank account. Opening accounts at several FDIC-insured online banks is easy, using the Max common application form. Max is not a bank, and it never holds your money; it merely facilitates the choices and transfer instructions with the highest level of security while also increasing FDIC insurance coverage. You can withdraw your money at any time, retaining full access to all those online accounts.

The cost of this service is a quarterly fee of two basis points — 0.02% — on the cash being optimized in your higher-yielding online savings accounts. That fee is likely far offset by yields significantly higher than your local banks are offering. These are not “brokered deposits” but automatic transfers in your name.

Founder and CEO Gary Zimmerman says that Max is growing rapidly and is now used by financial advisers from more than 850 wealth management firms from around the country. As well, more individuals are finding that the search for higher, FDIC-insured safe yields is now much easier. And that’s The Savage Truth.



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