Earn More on Cash: Exploring Institutional Money Market Funds, Brokered CDs, and MaxMyInterest
June 15, 2023
As a smart investor, you work hard, perhaps in close partnership with an experienced wealth management advisor, to manage your portfolio and make sure your investments are strategic, diversified, and tax efficient. But what about your cash holdings?
When kept in a traditional savings account, cash itself typically earns a relatively low rate of interest. This is because banks generally offer nominal interest rates on the funds deposited in savings accounts. However, by utilizing certain strategies, it’s possible to earn higher interest on your cash, while also finding a balance between stability and higher yields.
In this article, Michael Johnson, Senior Portfolio Advisor, outlines several options available to help you earn more on cash: institutional money market funds, brokered CDs, and MaxMyInterest.
Institutional Money Market Funds
Institutional money market funds are a type of investment fund that focus on short-term, low-risk investments, such as Treasury bills, commercial paper and certificates of deposit. These funds aim to provide a safe place for large investors (institutions, corporations, high-net-worth individuals) to keep their cash while earning a modest return. They also offer high levels of liquidity, making them a great choice for investors who want easy, quick access to their cash.
Consider the following to make the most of institutional money market funds:
- Research and compare funds. To choose an institutional money market fund that aligns with your risk tolerance and investment goals, evaluate different funds based on historical returns, expense ratios, minimum investment requirements, and the quality of underlying securities.
- Monitor interest rates. Rising interest rates typically lead to higher money market fund yields, while falling interest rates may impact your returns. Stay informed and work with your wealth management advisor to adjust accordingly.
- Diversify your investments. Diversifying your cash across multiple institutional money market funds or combining them with other low-risk instruments helps you mitigate risk, maintain stability, and enhance your overall returns.
As with any aspect of investing, a trusted wealth management advisor can help you identify which funds are best suited for your unique needs.
Brokered CDs
Brokered CDs are a type of investment product that allow individuals to purchase bank-issued certificates of deposit (CDs) through a brokerage firm or a financial advisor. Like regular CDs, brokered CDs have a fixed term, meaning you must agree to leave your money with the issuing bank for a specified period. Brokered CDs also offer fixed interest rates, but because they are targeted at investors with larger amounts of investable funds, they generally require larger minimum deposits compared to traditional bank CDs.
Another unique aspect of brokered CDs is that they can be bought and sold on a secondary market before the maturity date. Despite the opportunity for liquidity through the secondary market, brokered CDs are not liquid instruments; if you require access to your money before the CD matures, you may face penalty fees or be required to sell at a discount.
Here’s how to optimize your returns with brokered CDs:
- Seek competitive rates. Rates can vary between different brokerage firms, so it’s important to do proper research to find the highest yields.
- Consider longer-term CDs. Longer-term brokered CDs often offer higher interest rates compared to shorter-term CDs. Evaluate your financial needs to determine if locking your funds away for an extended period is suitable.
- Diversify and ladder. Allocate your cash across different brokered CDs with staggered maturities. This ensures regular reinvestment at potentially higher rates, while maintaining liquidity as each CD matures.
- Monitor and seize opportunities. As interest rates rise and new offerings become available, keep an eye out for higher-yielding CDs. Work with your wealth management advisor to find such opportunities and reallocate your funds to maximize returns.
MaxMyInterest
MaxMyInterest (Max)[1] is a financial platform that helps individuals and businesses optimize their cash holdings to earn higher yields. Users link their existing bank accounts to Max, and the platform then uses its proprietary algorithm to determine the optimal allocation of cash across the linked accounts. The platform also facilitates automatic transfers between linked accounts to ensure funds are allocated in the most efficient manner, enabling users to maximize the interest earned on cash while staying within FDIC insurance limits. Additionally, users can set preferences and goals within the platform, allowing the algorithm to tailor recommendations to specific user needs.
While Max can help optimize your cash holdings and potentially help you earn more interest, it’s vital to review the terms and conditions of your linked bank accounts and understand any fees or limitations. Further, you should always be aware of the risks associated with any financial service, and consult a trusted wealth management advisor for guidance if needed.
Helping You Get There…
Maximizing returns on cash requires a thoughtful, strategic approach. Institutional money market funds, brokered CDs, and services like MaxMyInterest offer valuable tools to enhance yields while maintaining stability. With thorough research, diversification, and partnership with an experienced wealth management advisor, investors can optimize their cash holdings and potentially earn more on their savings.
To talk to a wealth management advisor who is dedicated to helping you get there, connect with a member of the Boulay Financial Advisors, LLC team today.
[1] MaxMyInterest is not a service or solution that is offered by Boulay Financial Advisors, LLC; rather, it is a financial tool that can be used in addition to or outside of our wealth management services. Consult with your wealth management advisor for further guidance on MaxMyInterest.
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