I have had in my mind a simple concept for a banking service — one that I would love to use. After talking to a few friends about it, I thought I would put it down in writing.

As a user, one consistent bug I find in the financial system is that we make users do a lot of work to do things that should be simple. Often simple tasks seem to be much more challenging than they should be. One great example is cash management.

I have a checking account, savings account and a number of investment accounts. However, moving money between these accounts is a very manual process — but there’s no reason it needs to be. While some automation is available in the form of “automated withdrawals”, I’m always skeptical to set those up in case my needs change in any given month.

My needs are pretty straight-forward and consistent and a truly personal banking system would make this easy for me. I keep picturing a simple, automated system that would handle all of this for me. Imagine a simple waterfall system with three accounts.

  • Checking Account. At the top of the waterfall is the checking account. My paychecks are deposited here, and spending comes out of this account. I would target to have ~2 months of spending on hand here at any given time for a little cushion. When the account goes above this balance, money should flow down to my…
  • Savings Account. Next in the waterfall is my savings account. You can consider this my “big spending” and “rainy day” fund. It should contain ~6 months of monthly spending. This would be available if there were a disruption in income — or to fund larger spending (like a vacation) that does not require lending. If the balance in my checking account goes too low, it could be topped up from here. When the balance exceeds the target amount of 6 months of typical spending money should flow down to my…
  • Investment Account. I have long been a believer in simple index funds for most investors. Given the result of the 10 year bet Warren Buffet recently won about index funds out-performing hedge funds this seems like a solid choice for most users.

This simple waterfall model would help people maintain financial security by providing a buffer against unexpected expenses or events, while also investing available assets appropriately. I recently asked my bank if they could set something up for me along these lines — and they suggested we arrange a monthly conference call to agree on funds movements — not what I had in mind!

I think there are a number of benefits to this sort of automated setup. For more sophisticated users it automates the types of activities we attempt to take on a regular basis. I’ve always said that anything a trained monkey could do well, a computer should be doing. This seems like a pretty good example of that.

More importantly, it feels like many people don’t have a good grasp on how to set up and manage their accounts to ensure they have a degree of financial security in case something unexpected happens. Obviously, having a better, automated account structure won’t solve that problem — but it’s a start.

There is also no reason a bank couldn’t look at someone’s spending and income history (that data is right in their account after all) and recommend proper levels for the various accounts along with the rationales — mixing some useful education into the process. It seems like many users are looking for solid financial advice from their banking institutions and don’t feel like they are getting it — a solid cash management systems would seem like a good start!

Am I missing something? Is someone already doing? It seems like a relatively straight-forward solution and I’m really surprised I’ve never seen something like it.