Both entities and individuals can end up holding onto money for one of any number of motives, including:
- All-purpose savings
- Planned expenditures (specific savings)
- Asset sales
- Much more
Almost everyone agrees they’d prefer maximizing their cash assets; however, many people make the assumption that the only or best way to go about this is a savings account at their bank.
By way of the rest of this article, you’ll see that there are many other ways for you to make the most of your monetary assets, even short-range. If you’re an independent-inclined investor, continue reading so you can discover two eye-catching account choices to attain this end:
- Premium brokerage
- Direct mutual-fund
Before moving on, there are two big assumptions that we need to bring to the open and make plain and clear with regard to this dialogue.
Assumptions
The first thing is the short-range environment of cash is something that demands exposure levels of truncated risk. Essentially, it demands a very high level of price confidence. Explicitly, in no way does this article advocate the contrast of any longer-term devices to those of checking account funds. For instance, equity mutual-funds have no bearing due to the fact that the value of equity mutual-fund shares will have daily variation.
The return maximizing investor that’s looking toward making an everyday type of transaction, such as, purchasing groceries, has to be confident that their short-range cash hasn’t been reduced by the previous day’s market selloff. For that reason, it’s not an apt comparison.
The second is that all of the money type coffers need to be accessible within a practical time-frame devoid of incurring a penalty. It’s for that reason; things like CDs aren’t a practical choice in this respect. Although a CD is commonly thought to be a short-range investment, they can’t be spun into transactional funds without the issuer making a penalty assessment which will put an end to the investors return.
The Premium Brokerage Account
Most all brokers will offer many different brokerage account “levels”. Essentially, all brokerage accounts come embedded with a money market mutual-fund account. These funds are invested via mutual-fund shares in short-range fixed income securities.
The core tools used by the bank and direct participants are most often identical, with the difference being that the direct method is going to funnel all of the interest of the underlying securities to the mutual-fund shareholder less the management fee. (Management fee is usually around 50 basis points.) This is something that can be a yield of several hundred basis points in comparison to what the banks might offer on a similar account. Factors that will affect the realized difference in interest rates are going to include the predominant environment in the market along with the desire of the bank to attract funds.
Both the premium and the regular accounts are going to ensure the capacity to hold both money market mutual-fund shares and marketable securities; however, the premium brokerage accounts are going to stand far apart from the regular brokerage account types. The primary difference is with regard to the access to funds along with other features.
The premium brokerage account could offer you the ability to write checks along with debit cards to access your funds also. This is something that will allow you continual access to your funds, when and as you need them. This is something that’ll maximize the interest that you earn when your funds aren’t needed while still giving you ready access. Additionally, it’s possible that your arrangement on your premium account could simplify the monthly statement routine through the amalgamation and purging of accounts.
Direct Mutual-fund Accounts
The other option to maximize your interest is through the use of a direct funded money market mutual-fund account. You’ll find that most mutual-fund companies are going to offer as well as manage a money market mutual-fund. This is a direct investment, through mutual-fund shares, in money market instruments. Most often, both the management fee charged, and the interest rate received on these funds will be roughly equivalent to those funds netted on the premium account that’s conventional at a brokerage house.
The prime difference between these two routes is the process of moving the funds and the accessibility of the funds. The funds from the fund-direct mutual-fund aren’t available immediately; however, the funds are available to be transferred and sold on business days (non-holiday) throughout the entire year. Most often, mutual-fund shares are going to require a settlement period of one business day.
After settlement has occurred, the funds can either be dispersed through an ACH deposit directly into your savings or checking account, or by physical check. This is an option that’s fairly attractive, considering the fact that the earned interest rate and the expectation of liquid funds within just a few days.
Further Considerations
There are some nuances, for both of the above products, between the offers of the competing companies. With that in mind, an investor must be prepared to analytically view all of the drawbacks along with the benefits to any one of the offerings with regard to the premium brokerage account.
Furthermore, investors need to pay close attention to the generated returns on their money market funds, explicitly; the expected net performance must exceed that of your next best option. (Note: There may be some tax-free interest funds available.)
An investor needs to analyze their expected balance levels in relation to:
- Community banks
- Credit unions
- S&Ls (savings & loans)
- Newly chartered banks
- Online banks
Some of the above institutions may be in your neighborhood.
Furthermore, an examination of the fees needs to be examined. You’ll find up to $200 in yearly annual fees, not inclusive of trading costs. Some of the other and less obvious fees will include the ATM fee policies as well as the other implicit or explicit fees.
The key is to avoid having buyer’s remorse. In order to do this, the investor needs to review all of the features of the account that they’re looking at. Create a checklist to go through before you sign up for an account. These will be items, like:
- Online capabilities
- Current personal financial management software compatibility
- So on
All of these things and more need to be completely researched before you make any switch. If you do this, you’re going to substantially reduce the risk of having any buyer’s remorse.
Conclusion
Cash investments should never be an afterthought in financial planning. The ability of the investor to capture additional interest is something that can make a substantial metamorphosis within the risk-adjusted returns of a portfolio, especially for the conservative investor.
