The Physics Problem Plaguing the World of Finance

The concept of “inertia” applies to physics as well as personal and business deposits.

Earlier this month, the Wall Street Journal’s “Intelligent Investor” columnist1 introduced a vexing problem in the world of personal finance: inertia. In the article, they apply this concept to personal deposits at traditional banks and investment firms. At ADM, we agree with this assessment, and we believe this concept applies heavily to business deposits as well. Let us explain, but first let’s discuss the points made by the WSJ.

How does inertia apply to bank deposits?

As the columnist explains, the concept, well known in the world of physics, relates to the reluctance of individual investors to move their money after setting it up in an account.

“Inertia may be the most powerful force in financial physics,” the Intelligent Investor explains. “Once you have cash in a bank or a brokerage account, moving it will tend to feel harder—perhaps even ‘riskier’—than leaving it there. In what economists call ‘the flypaper effect,’ money tends to stick wherever it lands. One study of roughly 850,000 participants in a retirement plan found that 72% had never changed how much they invested in which fund. At a major discount brokerage, more than one-fifth of customers, making nearly 460,000 trades all told, never sold a single stock whose price had fallen. At various companies, 50% to 80% of workers who were automatically enrolled in a retirement account left their contribution rate untouched, although they were free to change it at any time.”

As the Wall Street Journal points out, individual investors have an alternative to traditional banks that could capitalize on the inertia concept while improving outcomes for investors, one made possible by ADM’s partner, The Intelligent Investor explains:

“The firm isn’t a bank; it functions like a financial switchboard, automatically rerouting your money among the online banks in its network to get the optimal blend of yield and safety… Once a month, MaxMyInterest reallocates your deposits among banks to keep your income as high as possible and all the federal insurance in place.”

What kind of difference can this service make to an individual investor? The Wall Street Journal breaks down the statistics: The roughly $8 trillion socked away in savings deposits at commercial banks in the U.S. is earning interest at an average rate of 0.09%. There is about $1 trillion in brokerage firms that’s paying investors slightly less than 0.3%.

Meanwhile, MaxMyInterest is offering investors a rate of up to 2.46% (per, as of 2/11/2019).

Are there options like this for business deposits?

Businesses often encounter the same inertia when handling their deposits. We see it every day at ADM. Businesses come to us for help because they know they’re putting their corporate cash at risk by keeping it all in one place. They also know they could be earning a more competitive return if they looked beyond their bank of choice.

We, in turn, offer those businesses a new way forward: Our proprietary Deposit Management technology, that we call Marketplace Banking™, can spread corporate cash around to hundreds of financial institutions, allowing businesses to secure FDIC / NCUA insurance for up to $75 million – rather than the $250,000 guaranteed at any one bank. This allows the business to earn a competitive return with a single deposit and a single statement. This is courtesy of our network of hundreds of banks and credit unions across the U.S.

At ADM, the inertia problem is why we do what we do. We believe safety is paramount, but it shouldn’t come at the expense of a competitive return. That’s why we’ve partnered with Once our customers understand the value of what we offer, they want to apply it to their personal investment strategy, as well. And we’re happy to refer them to a stellar partner who we trust and who we know will propel them out of that pesky inertia.

It’s easy move your business and personal deposits to ADM and MAX.

You can learn more about here. For more about how ADM can help your business, check out our Solutions Finder, or contact one of our friendly associates today. We can connect you with the right resources to make the most of your cash, whether it’s business or personal. 




*American Deposit Management Co. is not an FDIC/NCUA-insured institution. FDIC/NCUA deposit coverage only protects against the failure of an FDIC/NCUA-insured depository institution.