By the end of 2020, almost every client asked us the same question: “How do I get a better interest rate on my bank money?”
Interest rates hit an all-time low during COVID. Over the past few years, they have plummeted by nearly 90%. People that were seeing thousands of dollars in interest before are now left with only a few hundred dollars in interest income.
This gets even worse for business owners, with an average business checking account earning next to 0% interest!
So, how do you get the most bang for your buck in this low interest rate environment?
Through effective interest rate planning and managing your excess cash on a regular basis.
Remember, there are still opportunities out there. It’s just that finding them has become more challenging because managing your cash regularly can be a time-consuming process.
There are some companies, such as The American Deposit Management Company, that specialize in this field. They use their expertise to undertake the cash management function of various businesses and to maximize interest rate opportunities.
In this blog, we’ll discuss the key benefits of outsourcing your interest rate management to outside experts like those at The American Deposit Management Company.
Read on to learn 4 solid reasons to say yes to outsourcing your cash management!
Before We Begin, Know Why Interest Rate Management Is Important
“It’s just cash. It’s safe and secure in my checking account. I don’t really care if I earn a lot of interest on it.”
This mindset is really common and a lot of people use it as a reason NOT to seek active interest rate management.
But here’s why simply leaving your excess cash in your checking account is probably not a good idea: it might be losing its value daily!
With extremely low interest rates right now, you’re likely to earn next to zero percent return on your deposits. When you compare this return to the inflation rate (which is expected to rise moving forward), you’ll actually see an overall decline in your purchasing power.
Therefore, if you wish to grow your wealth net of inflation, you’ll need to manage your excess cash through effective interest rate planning.
Now, let’s move on to the reasons why you should consider outsourcing your interest rate management instead of doing it on your own.
1. To Allow You To Focus on Your Core Business
Most large companies have a whole team of people whose sole focus is active cash management. This is cash coming in from customers, cash going out to suppliers, and payroll accounts – they basically manage every major cash flow for a company. In most cases, this special team tries to find the best places for their cash on almost a daily basis.
However, this might not be feasible for small- to medium-sized business owners. Their primary focus is on their core business operations while simultaneously dealing with their clients and making sure that the business is running smoothly. They rarely have enough time to look into their cash management.
In such a scenario, outsourcing your interest rate management might be your best option. Doing so will take the important, but time-consuming, process of managing your cash off your plate and allow you to solely focus on your main business.
2. Let the Experts Take Care of It
The benefits of hiring an outside expert for your interest rate planning are huge. These experts are able to do things that might seem impossible to achieve to you as an individual. In a way, they make the tools used by large corporations accessible to small business owners.
One of their biggest advantages is that these experts often enjoy huge economies of scale. They pool the money from several clients together, which ultimately gives them a greater leverage while negotiating interest rates.
After all, banks compete to earn your deposits. They don’t want you walking away with your money to another bank and they certainly wouldn’t want someone with billions of dollars of money gathered from thousands of clients walking away.
These experts might also be heavily connected with a broad network of banks. For instance, The American Deposit Management Company works with a network of 500 banks all over the country. They have people who constantly stay in touch with each one of these banks so that they don’t miss any opportunities.
Lastly, these experts have most likely been doing this type of work for a long time. They are well-versed with the common challenges that arise in interest rate planning and know how to tackle them.
3. Avoid the Hassle of Multiple Logins and 1099s
Interest rate planning can involve operating multiple bank accounts at the same time. This means that you’ll have to monitor individual statements for each account, a separate login to access all the accounts, and multiple 1099s while filing your taxes.
But you need not worry about any of those things if you outsource your interest rate management. You get one point of contact for all your bank accounts. This is probably one of the biggest reasons why you should consider outsourcing your cash management instead of spending too much time doing it on your own.
4. Boosting Your FDIC Insurance Protection
The Federal Deposit Insurance Coverage (FDIC) provides insurance protection up to $250,000 deposits for a particular bank. So, if you have more than $250,000 in excess cash, you could hire an expert like The American Deposit Management Company to boost your FDIC insurance protection.
Managing multiple accounts can be difficult for an individual, which is why it’s a good idea to outsource it. If you have less than $250,000, you can do it on your own by using tools like MaxMyInterest. This enables you to search for the best interest rates for your bank money. If you reach a point where you have more than, let’s say, a million dollars of cash to manage, then opening all these individual accounts on your own can become incredibly cumbersome.
Some Tips To Assist You in Finding Better Interest Rates
In addition to consulting an outside expert to manage your interest rates, there are some things that you can do as an individual to receive greater interest rates.
The first thing you can do is to negotiate. Negotiate with your bank to get yourself better interest rates. We actually have a client who actively manages his own accounts. He goes and negotiates with every single bank in the town, discusses different terms, moves his money from one bank to another, and finds higher interest rates for his money.
A couple of years ago, 3 people who had their money at the same bank came to us and complained about the low interest rates offered by their bank. At that time, you could get up to 2% interest online (you can find these rates through Bankrate.com). We asked them to print that out and use it to negotiate with their bank. Believe it or not, all 3 of them ended up getting a higher interest rate than they were getting before!
Another thing you can do is to develop a lasting relationship with your bank branch managers or personal bankers. This can go a long way and can help you in future interest rate negotiations.
Finally, get an advisor to guide you along the way. Financial advisors not only help you with your investments such as stocks and bonds, but can also guide you in managing your excess cash and boosting your interest rates.
If you wish to learn more about The American Deposit Management Company and how they can help you in your interest rate planning, visit their website.
And if you have any questions regarding your retirement planning, feel free to contact us!