Even though it doesn’t earn you much return over time, every investor knows that cash is an important component of your overall financial strategy. Beyond providing liquidity for ongoing transactional needs, every household needs to hold cash as a reserve for emergencies. In addition, many experienced investors use cash accounts to reserve funds that they eventually want to deploy into longer-term investments, as well as to amass the amounts needed for substantial future expenditures, such as an automobile purchase or a house down payment.
Additionally, in our current white-hot real estate market – where many sellers prefer to accept cash-only offers – home buyers who are trading up have an incentive to sell their current property first and then use the cash to shop for their new house. And in California, that’s a lot of cash.
One problem with all of that cash is that, in many cases, investors simply leave money sitting in a bank account, earning essentially nothing. And even through the rates on all short-term holdings also come down to historically low levels recently, if you’re holding a lot of cash there’s still a difference between 0.01% and 0.30%. Yes, it’s possible to research high-yielding online banks, but they have per-account limits and rates aren’t guaranteed. So this month’s leader may be next month’s laggard – meaning that it’s a constant chore to check and move funds from account to account in order to keep up. For busy professionals, that’s generally not a great use of their time and energy.
Depositors with large balances might have a more serious problem. The FDIC provides insurance of up to $250K for an individual account, but any amount held in an individual account at a single bank above that limit is at risk. Some banks do court higher balances by offering “private client” services or related discounts, but you’re likely to ‘pay’ in unexpected ways for the privilege. Banks that offer above-market rates generally do so as a marketing tool. They’re going to aggressively cross-sell cash account customers on other services and may even sell your information to third parties in order to recoup some of their expense.
Many clients of our firm are familiar with these situations: holding more than they need in an account earning very little, needing to park $2 million in a single account, or wasting time hunting for higher yielding accounts only to find that they were given a “teaser rate” and have to start the process all over again the following month.
Flourish Cash
To address this need and to help our clients do more with their cash while keeping it insured, we recently partnered with Flourish Cash. A Flourish Cash account can be opened in just a few minutes, seamlessly works alongside our clients’ existing bank accounts, and pays a rate higher than the 0.01% paid by the average savings accounts. Though Flourish Cash rates are only approximately 0.25% today, they have historically approximated the highest of the high-yielding online banks. We believe that this historical pattern is likely to re-emerge as the Fed begins to raise interest rates again.
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 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.
Because of the way the platform works, Flourish Cash is able to provide FDIC insurance of up to $2MM for an individual or $4MM for a joint account. They simply spread the money out among multiple banks, providing multiples of the per-bank FDIC limit.
There are no minimums, and no account fees. It takes less than five minutes to sign up.
Flourish Cash for Institutions
Recently, Flourish Cash added the ability for businesses and nonprofits to open accounts as well. 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.
Flourish is available by invitation only through the advisors that they partner with, so you cannot sign up directly. If you’re a current or prospective client of Griffin Black, or just want to learn more about Flourish Cash, please reach out to us!
Image by Branislav Nenin from Shutterstock.com
