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Think of a cash management account as a central hub that keeps all your finances in one place. It combines the features of checking, savings, and investment accounts — into one single account.
A cash management account may be a good option if you’re looking for a simple, streamlined way to manage your money. Plus, they often offer interest rates well above average.
But are cash management accounts right for you? Here’s everything you need to know — and what you should be aware of before opening one of these accounts.
How do cash management accounts work?
Cash management accounts blend the benefits of checking and savings accounts.
With a CMA, you can deposit funds and earn interest on your balance, just like a savings account. But unlike a traditional savings account, CMAs also have the flexibility of a checking account, allowing you to write checks, make transfers, and withdraw cash using a debit card. These accounts often offer higher interest rates than regular checking accounts and may provide perks like ATM fee reimbursements.
The best cash management accounts offer interest rates around 5% — over eight times higher than the average savings account interest rate.
What sets CMAs apart is their integration with other financial services, like investment accounts. This can give you a holistic view of your finances.
Despite sharing the same features as checking and savings accounts, CMAs are “nonbank” products since they technically aren’t offered by traditional banks.
Instead, you’ll find them through brokerages, investing apps, or robo-advisors.
But that doesn’t mean your money isn’t safe. Many of these brokerages partner with traditional banks to insure your money via FDIC insurance, which covers up to $250,000 per person per bank.
If you have a lot of money deposited, your account may split up your money among several banks. For example, if you deposit $600,000, your brokerage may divide it among three different banks, ensuring the entire deposit is covered.
Pros and cons of a cash management account
Pros
- Simplified account management
- Competitive interest rates
- FDIC insurance for higher deposits
- Low fees
- Accessible
Cons:
- No in-person banking
- May find higher returns elsewhere
- Minimum balance requirements
- Limited features
There’s a lot to love about CMAs and what they offer. For starters, they’re a convenient way to manage your money. You can manage your money in one place without juggling different accounts across different banks.
CMAs generally come with higher rates than traditional savings accounts. You can also access checking account features like debit cards, mobile check deposits, and free ATM access. Plus, most platforms offer fee-free CMAs, so you don’t have to worry about fees eating into your savings. If you’re interested in investing, a CMA makes it easy to move money from one account to another quickly.
Because robo-advisors or investing apps offer most CMAs, it’s very easy to manage your money while on the go. You’ll get access to a user-friendly mobile app or manage your account via an online banking portal.
Still, there are a few downsides to consider. For starters, the APY you earn could be below what you’d get with a high-yield savings account. Some accounts come with hefty minimum balance requirements, and you’ll incur maintenance fees unless you meet specific requirements.
Limited access to a human could be a cause for concern. “If you use these types of accounts, you need to be comfortable with online banking. You should also be prepared to solve any issues that arise through the phone or a chatbot,” says Julian Morris, CEO of Concierge Wealth Management.
If you prefer an in-person or face-to-face banking experience, it likely isn’t the right option for you.
Alternatives to a cash management account
If you’re not sold on using a cash management account, there are a few alternatives you can consider.
- High-yield savings account: These accounts offer higher interest rates, growing your savings while keeping it accessible. Remember that these accounts often won’t include features like ATM access or debit cards.
- Money market account: These accounts are most similar to CMAs, combining savings accounts’ interest rates with checking accounts’ liquidity. Depending on the account, interest rates may be slightly higher than CMAs.
- Certificates of Deposit (CDs): With a CD, you deposit a specific amount of money for a fixed period of time, usually ranging from a few months to several years. In return, you receive a higher interest rate than most CMAs. But keep in mind CDs aren’t very liquid and usually have early withdrawal penalties.
- Money market funds: These are investment funds that invest in short-term, low-risk securities. They aim to provide stability and liquidity while offering competitive yields. Money market funds are not FDIC-insured, but they are considered relatively safe.
The bottom line
If you prefer the convenience of keeping all your bank accounts under one roof, a CMA may be a good option. You can leverage digital banking tools to manage your funds, earn above-average interest, and invest your money.
But before opening an account, do your homework to identify the best options. Compare interest rates, research account fees, and evaluate customer reviews to find an account that aligns with your financial needs and goals.
Opinions expressed are author’s alone, not those of any bank, credit card issuer, or other entity. This content has not been reviewed, approved, or otherwise endorsed by any of the entities included in the post.