A typical client of Gary Zimmerman’s fintech banking solution earns enough interest on their cash to pay for a car lease for the rest of their lives.
Zimmerman is the CEO of MaxMyInterest, a New York City-based company founded in 2013 that spreads cash across multiple online savings accounts to earn higher interest for clients and to keep their assets safely under FDIC limits.
The former banker told Benzinga in an interview about the genesis of MaxMyInterest, how it works and what the future holds for the company.
What led you to the idea of MaxMyInterest?
Zimmerman: I was working for one of the big banks when the financial crisis ensued. It struck me that if the bank I worked at went under, all the cash I had sitting there, every dollar over the FDIC limit, would leave me as an unsecured creditor of the bank. I was looking for a solution to keep cash safe.
I happened to be living abroad at the time, and the simplest solution I could think of was to open more bank accounts.
I went online, and I found the online banks...and I spent the next 3 1/2 years manually managing a portfolio of online accounts until I got tired of doing so. I wondered if there’s a way to automate this. I started thinking about whether it would be possible to automate this process of managing bank accounts.
Do you view MaxMyInterest as a disruptor in the banking sector?
Zimmerman: I guess “disruption” is maybe an overused term these days. What we’re trying to do is bring efficiency and transparency to this multi-trillion dollar market for bank deposits. We’re trying to do it in a way that simultaneously helps individual investors, the financial advisors and the banks.
One thing I like to think about is how to disrupt without being disruptive. The term disruption tends to portray winners and losers. What we’re doing creates a lot of winners.
What challenges did you have to overcome to get MaxMyInterest online?
Zimmerman: We built something called the Max Common Application. It was modeled after the common application for colleges. When I went to college, I had to fill out a separate application form for every college. Now, you can fill out one form and check off the names of the schools where you want to apply. Most of the information for applying to college is the same for each school. We took that concept and applied it to savings accounts.
It used to be that if you wanted to open a new online banking account and link to your existing accounts, you would have to go through a trial deposit verification process, and that whole process could take three days. With our common application, you can open a new online account, link to your external account and begin funding it in under three minutes. In the time you’re waiting in line at Starbucks, you can open up a MaxMyInterest account and begin earning more on your cash in the bank, and the increased interest earned will basically pay for your coffee everyday for the rest of your life.
What kind of financial instruments does MaxMyInterest use?
Zimmerman: It’s just savings accounts. That’s sort of the beauty of MaxMyInterest: Its simplicity. We’re not an asset management firm and we’re not a financial advisory firm, and we do not take custody of any assets. We’re really a tech company that serves as an air traffic controller for your cash. The money always stays in your accounts.
Are rising interest rates bringing more attention to your company?
Zimmerman: The thesis that we had was that as interest rates rise, the spread — the difference between what someone earns and what they earn from MaxMyInterest — would widen. That’s played out quite vividly. When we started, the difference between the national savings average and the average yield our customers were earning was 73 basis points. Today that spread is 108 basis points. We expect it to continue to get better. This is just found money. It’s incremental interest without incremental risk.
Do you have any direct competitors?
Zimmerman: We always consider apathy to be the biggest competitor to our business. Someone asked me: “Is it like apathy.com?” No, it’s apathy — “it’s just cash, it’s not going to earn any interest anyway.”
When you pick stocks to go into our your 401(k), those that make an extra five or 10 or 20 basis points over a long period of time make a difference. That’s also true when it comes to cash.
For a typical client who holds about 25 percent of their assets in cash, if they can pick up an extra 108 basis points in cash and that’s 1/4 of your portfolio, you’re boosting the overall performance of your portfolio by 27 basis points.
What's next for MaxMyInterest?
Zimmerman: We began really as a B2C solution, with individual investors coming to the website and signing up and beginning to earn more on cash. Inasmuch as this is great for individual investors, it’s also very helpful to financial advisers. It gives them a tool to deliver a dramatically higher yield on cash. That’s a class most advisers haven’t paid much attention to. We’re doing more and more integrations now with wealth management firms where MaxMyInterest becomes embedded into their platform.
This article is exlusive to Nasdaq.com; the interview has been edited for clarity and brevity.