- May 23, 2023
- Mike Minter
There is one asset class that every investor holds in some amount: Cash. And up until the last 12 months or so it’s been one of the most boring asset classes on the planet to discuss. For the better part of my investing career, cash has been earning next to nothing, whether in a checking account, bank savings, CDs, money markets – you name it. But that all started to change when the Fed began aggressively raising interest rates. Some cash vehicles are now bumping up against 5% yields.
Although we always hold some amount of cash in our client accounts, we’ve never been advocates for large, strategic allocations to cash in the context of a diversified investment portfolio. Especially since higher yields on cash are often accompanied by higher inflation that erodes that cash quickly. That said, there are often instances where it is entirely appropriate to keep a substantial cash balance outside of your investment portfolio.
Beyond what you keep in your checking account for regular cash flow (obviously it’s entirely prudent to keep cash in checking that’s earmarked for monthly expenses), it is perfectly normal to hold larger amounts of cash to cover near-term liabilities, amounts waiting to be deployed into a portfolio over time, substantial future expenditures such as automobile or house down payments, or simply an emergency fund.
But one of the issues with holding significant amounts of cash today is that many people just leave all of it sitting in their traditional bank’s checking or savings account. These types of traditional bank accounts typically pay much lower rates on cash than some of the other options out there that are equally safe and secure. As of this writing, the national average yield for bank savings accounts is 0.25% APY, according to Bankrate’s May 17 weekly survey of institutions.
In stark contrast, many online banks have savings rates that are closer to 4% – and FDIC insured. And money market funds are yielding closer to 5%.
Which brings us to the point of this article…
Your Cash Options With Financial Synergies
Money Market Funds
For some time now we’ve been proactively funneling excess client cash reserves into higher yielding money market funds at Schwab and Fidelity, which are yielding close to 5%. These are not bank deposit accounts and therefore the cash is not being lent out to bank customers like a typical savings account.
Money market funds are fixed income mutual funds that invest in debt securities characterized by very short maturities and high credit quality. These securities are issued by government entities or companies who borrow money and repay principal and interest to investors within a short period of time. They are among the lowest-volatility and risk types of investments – designed to maintain a daily net asset value (NAV) of $1 per share.
These funds are registered in your name and not commingled with any brokerage firm general funds or accounts. In addition, they are covered under the Securities Investor Protection Corporation (SIPC), which provides protection for securities and cash in client brokerage accounts, including those held by clients of investment advisors. SIPC protections are activated in the extremely rare event that the broker-dealer fails (bankruptcy) AND client assets are missing due to fraud or other causes. Money market funds are essentially one of the safest cash vehicles on the planet.
FDIC Insured Cash Savings
Everyone has a need for some amount of FDIC insured cash savings, whether it’s in a checking or savings account, and earmarked for short-term expenses. And sometimes it’s necessary to keep larger amounts of cash that you need to keep safe and liquid, and preferably FDIC insured. But, as we discussed above, most traditional bank savings accounts are still paying anemic rates. In addition, the FDIC provides insurance of up to $250,000 for an individual account, and any amount held in an individual account at a single bank above that limit is at risk.
Some banks court higher balances by offering “private client” services or related discounts, but it might not always be the right thing for you. Those banks that do offer higher rates generally want to cross-sell their customers on other services and will constantly be marketing to you once you open an account.
Many of our clients have found themselves in these situations, holding more than they need in an account earning very little or spending time seeking out higher yielding accounts only to find that they were given a “teaser rate” and have to start the process all over again.
Enter Flourish Cash
To address these issues and help our clients earn more on their cash while keeping it FDIC insured, we partnered with Flourish Cash. A Flourish Cash account can be opened in just a few minutes, seamlessly works alongside your existing bank accounts, and pays a rate much higher than the 0.25% paid by the average savings accounts – today, Flourish Cash pays 4.55%.
Flourish Cash is not a bank – they have partnered with banks that have joined their program. Any money that is deposited into the Flourish Cash account is automatically deposited at their Program Banks, which are all FDIC insured.
The money is not invested; it is simply deposited at the Program Banks. You can access your money on any day and transfer money as often as you’d like.
And because of the way the platform works, Flourish Cash is able to provide FDIC insurance of up to $1.5MM for an individual or $3MM for a joint account. They simply spread the money out among multiple banks, providing multiples of the per-bank FDIC limit.
Flourish Cash also allows businesses and nonprofits to open accounts. They receive the same rate as individuals and get up to $1.5MM in FDIC coverage per entity. We know that many business owners keep far more cash in operating accounts than they need day-to-day, and nonprofits frequently keep 6-12 months of expenses in cash. There are even fewer banks paying competitive rates on business cash, and that money is usually earning nothing. Flourish is a simple way to change that.
Summary of Flourish Cash
Flourish Cash is designed to help you or your business earn a competitive interest rate on your cash while providing you with access to increased FDIC insurance coverage through Program Banks, all within an account that’s designed for complete ease-of-use: no account fees, no minimums, and an unlimited number of transfers. Flourish Cash is available by invitation only.
Any money you transfer into your Flourish Cash account will be automatically deposited at select FDIC-member banks, such as PNC Bank and HSBC Bank USA, through a broker-dealer “sweep program.” This means your cash will receive FDIC insurance coverage as if you had deposited that cash directly with those banks, and you can withdraw it whenever you need it.
Flourish Cash gives you one account that provides:
● A Competitive variable interest rate – earn up to [4.55% APY] on the first $500K of cash for individuals and businesses and the first $1MM of cash for joint accounts, with remaining balances earning [4.25%].
● Keep your cash FDIC Insured – receive FDIC insurance coverage through Program Banks of up to $1.5MM for an individual or business account and $3MM for a joint account.
● Easily access your cash – transfer money with just a few clicks whenever you need it with an unlimited number of transfers.
● Zero minimums, zero account fees – Flourish Cash was built for total flexibility, with no minimums and no account fees–all while taking less than five minutes to sign up.
● Support for multiple account types – individual and joint accounts, revocable trusts, businesses, non-profits, partnerships, LLCs and more.
Financial Synergies does not charge any fees for access to Flourish Cash, nor do we receive any compensation whatsoever from Flourish. This is simply a value-add service for our clients. For a complete guide on Flourish Cash, click here.
*If you’d like to learn more about Flourish Cash, contact me directly at mminter@finsyn.com
Cash Options Summary
When it comes to cash management in the current environment, here’s the way I look at it:
- My go-to #1 choice would be a money market fund (e.g. Schwab, Fidelity, etc.). They are about as safe as it gets and offer the highest yield, in most cases. These current money market fund yields are even competitive with 1-year+ CD rates right now, and with no lock-up periods.
- If, for whatever reason, you have a need for larger amounts of cash that you would like to have FDIC insured or just prefer to keep in bank savings, then consider a Flourish Cash account or some other online bank offering competitive yields.
As always, please contact us with any questions about this or any other financial matter.
Concerns or questions about how your investment portfolio will hold up in the current market environment? Contact Financial Synergies today.
We are a boutique, financial advisory and total wealth management firm with over 35 years helping clients navigate turbulent markets. To learn more about our approach to investment management please reach out to us. One of our seasoned advisors would be happy to help you build a custom financial plan to help ensure you accomplish your financial goals and objectives. Schedule a conversation with us today.
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