In the world of personal finance, 'lazy money' is a term used to describe funds that are not actively working to generate returns. These could be funds sitting in low-interest savings accounts or funds that are not invested. With all the historic events over the past few months, the trillions of deposits that remain uninsured, and the trillions more that are earning very little interest, the cash conversation continues in abundance. With recent bank failures, the need for effective management of lazy money has become more apparent. Our clients are increasingly interested in spreading their money out and reducing risk.
Understanding Lazy Money
'Lazy money' refers to funds that are not being utilized to their full potential. These funds are often sitting in low-interest savings accounts, earning minimal returns and possibly underinsured. The risks associated with not effectively managing lazy money include missed opportunities for growth and potential loss due to bank failures or inflation.
Potential Solutions
Federally Insured Cash Account (FICA) by StoneCastle
One account: over 900 FDIC-insured banks. Through our partnership with StoneCastle's Federally Insured Cash Account, we offer a solution for managing lazy money. With a single FICA account, clients gain access to a network of over 900 banks in the U.S. This helps in spreading out the deposits and reduces the risk associated with keeping all money in a single institution.
FICA provides up to $25 million in FDIC insurance per tax ID, which is 100 times the standard FDIC insurance limit. All client deposits in FICA are backed by the full faith and credit of the U.S. government, and no one bank holds more than $250,000 per client. This means, there are no uninsured deposits which significantly reduces the risk of loss due to bank failures. Moreover, FICA offers a competitive annual percentage yield (APY) of 4.42% (as of 7/1/2023) which is 10 times higher than the national savings rate. This means that your money isn't just safe, but it's also growing. FICA clients have the flexibility to access their funds on a next-business-day basis with 24/7 online access, providing the liquidity often needed for effective cash management. And there are no account fees or transaction limits, and only a single Form 1099 for tax purposes.
StoneCastle was founded in 2003 and has over $22 billion under management. They provide insured deposit solutions to individuals and to some of the world’s most recognized companies, university endowments, foundations, family offices and public funds.
Multi-Year Guaranteed Annuities (MYGAs)
Multi-Year Guaranteed Annuities (MYGAs) are another solution for managing lazy money. MYGAs are a type of fixed annuity that provides a guaranteed interest rate for a specified period. They offer a safe and secure investment option with a guaranteed return, making them an attractive option for those looking to reduce risk.
MYGAs can provide a higher rate of return compared to traditional savings accounts and CDs, making them a good option for managing lazy money. They also offer tax-deferred growth, meaning you don't pay taxes on the interest earned until you start receiving payments.
Comparing FICA and MYGAs
Both FICA and MYGAs offer solutions for managing lazy money and reducing risk starting at $100,000 each. FICA provides a high level of FDIC insurance and access to a network of banks, while MYGAs offer guaranteed returns over a specified period. The choice between the two will depend on individual financial goals and need for liquidity.
Managing lazy money is crucial in today's uncertain economic environment. Both StoneCastle's FICA and MYGAs offer effective solutions for spreading money out and reducing risk. It's important for individuals to consider their personal financial situation and goals when choosing the right solution for their lazy money.
Now is the time to have the cash conversation. If you are interested in learning more about StoneCastle’s FICA accounts, how MYGA options may work for you, or for other investment ideas, please reach out to the Impact Wealth Team at (303) 645-4800 or Impact@ImpactWealth.com
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Cash Fact
U.S. adults on average have used the same primary checking account for more than 17 years and the same savings account for nearly 17 years.
- 2022 BankRate Consumer Survey
