What Is A Cash Management Account? (2024)

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Cash management accounts are an alternative to traditional bank accounts that simplify money management. They are geared toward individuals looking for accessibility and safety for large amounts of money. Here’s a closer look at cash management accounts, how they work and how they compare to other banking options.

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What Is a Cash Management Account?

A cash management account is a cash account typically offered through nonbank financial institutions, such as:

  • Robo-advisors
  • Online investment firms
  • Mobile trading apps

Cash management accounts, also called CMAs, offer an alternative to traditional checking and savings accounts. These accounts help customers manage their money and make payments while earning interest. Perhaps most conveniently, CMAs allow customers to bank and invest without switching between several accounts and apps.

Cash management accounts vary depending on the institution but typically include a checkbook, debit card or both. CMAs are also known for charging little to no fees for their banking services. They make money through fees on investment and retirement accounts and optional financial planning services.

How Do Cash Management Accounts Work?

Cash management accounts keep your money safe while earning high-yield interest. When you deposit money into a CMA, it’s held in accounts at your financial institution’s partner banks. Often, the deposits are split between several different partner banks.

These accounts offer many of the same functions as traditional bank accounts. Account holders can deposit and withdraw from their accounts as needed, through electronic transfers, debit cards, direct deposits and checks.

Some cash management accounts combine the features of a savings and a checking account, while others offer both types of accounts. Both instances give customers access to everyday banking and interest-earning opportunities.

Benefits of Cash Management Accounts

One of the main draws of a cash management account is the convenience of banking and investing in one place instead of using various banks and brokerage firms. Not only can you manage your money in one spot, but also some CMAs come with access to popular banking services traditionally offered by banks, including:

  • Direct deposit
  • Online bill pay
  • Access to third-party payment sites
  • Fee-free ATM networks

Another benefit to cash management accounts is access to extended FDIC protection. Nonbanks can’t provide FDIC coverage directly, but deposits in CMAs are often covered beyond the legal limits. Each partner bank account is FDIC insured up to $250,000 per depositor, for each ownership category, in the event of a bank failure. Because the CMA can use multiple partner banks, your deposits could be covered up to $1.25 million or more in some cases.

Always verify what services a cash management account offers before applying.

Cash Management Accounts vs. Checking Accounts

As mentioned earlier, cash management accounts are an alternative to traditional checking accounts, which leads to the question—why do you need an alternative? Checking accounts help you manage your everyday transactions like paying bills and making purchases. What advantages does a cash management account have compared to a checking account?

  • Interest earning.The primary difference is that many cash management accounts earn high-yield interest similar to an online savings account. While interest-bearing checking accountsexist, they are less common and usually don’t offer rates comparable to cash management accounts.
  • Similar services.Several cash management accounts offer the same services as a checking account, like access to a checkbook, ATM cards and online and mobile account management. On the surface, there’s not much difference between these cash management accounts and a checking account.
  • Enhanced connectivity.Because cash management accounts are typically found at investment firms and robo-advisors, your account is linked to your investment account. The advantage of having accounts in one spot is moving funds quickly to take advantage of investment opportunities and automate your investments. While some banks offer investing and retirement products and services, it’s usually not their primary business. You may also see a slight delay with transfers and transactions, which typically isn’t the case with cash management accounts.
  • Fees.Most nonbank financial institutions don’t charge fees on cash management accounts. That’s not always the case with high-yield checking accounts, which often charge a monthly maintenance fee or have requirements customers must meet to waive them. Keep in mind that come cash management accounts come with high minimum balance requirements.

Pros and Cons of Cash Management Accounts

Pros

  • Banking and investment accounts all under one service
  • Easy access to your funds
  • FDIC insurance beyond normal limits
  • Higher APYs than brick-and-mortar banks
  • Access to no-fee ATM networks or ATM fee reimbursements
  • Mobile and online account management

Cons

  • Rates may be lower than high-yield savings accounts at online banks
  • May not have access to joint or trust accounts
  • High minimum balance requirements in some cases
  • No local customer support option

Things to Consider

As with any bank account, it’s important to compare cash management accounts to determine the best option for your money. Here are some factors to consider when comparing cash management accounts:

  • APY.Most cash management accounts offer high-yield interest. Higher rates will earn more money over time.
  • Minimum balance requirements.Check to see if a cash management account has any minimum balance requirements. Make sure you can meet those requirements before opening an account.
  • Fees.Many cash management accounts don’t charge fees, but it’s good practice to verify details like this before moving forward. Also, check fees on the linked brokerage account. That’s where nonbank financial institutions make their money.
  • FDIC coverage.Check to see how much FDIC insurance is included with a cash management account. The only time you want to have more than $250,000 in your account is if the money is distributed to multiple partner banks, so it’s all protected.
  • Services.What services does the cash management account offer? If having access to check-writing and fee-free ATMs is important to you, make sure they are included with the account.
  • Customer service.It’s wishful to think you’ll never have any issues with your account, but it’s always good to see what options are available if you need to get in touch with customer support.
  • Investment services.One of the main benefits of a cash management account is that it’s linked to your brokerage account. Make sure the cash management account is tied to a brokerage firm or robo-advisor that you like and trust before applying.

Is a Cash Management Account Right for You?

Cash management accounts come with several benefits and services that usually meet or exceed what’s offered by traditional bank accounts. This doesn’t mean they are right for everyone. A cash management account is a good fit for people who like the idea of keeping all of their money in one spot.

These accounts are only useful if you are comfortable doing all of your banking online or through a mobile app. If you would rather keep your bank accounts separate from your investments, an online bank that offers high-yield savings or checking accounts might be a better fit.

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As an enthusiast with a deep understanding of financial management and banking alternatives, let me provide you with insights into the concepts mentioned in the article about cash management accounts.

Cash Management Account (CMA): A cash management account is a financial tool offered by nonbank financial institutions, such as robo-advisors, online investment firms, and mobile trading apps. It serves as an alternative to traditional checking and savings accounts, aiming to simplify money management. CMAs allow customers to seamlessly manage their money and make payments while earning interest. These accounts often come with features like a checkbook, debit card, and minimal to no fees for banking services.

How Cash Management Accounts Work: CMAs keep deposited money safe while earning high-yield interest. When funds are deposited into a CMA, they are held in accounts at the financial institution's partner banks, often distributed among multiple partners. These accounts function similarly to traditional bank accounts, allowing deposits, withdrawals, electronic transfers, debit card transactions, direct deposits, and checks. Some CMAs combine features of both savings and checking accounts, providing access to everyday banking and interest-earning opportunities.

Benefits of Cash Management Accounts:

  • Convenience: CMAs offer the convenience of banking and investing in one place, eliminating the need to switch between multiple accounts and apps.
  • Extended FDIC Protection: CMAs may provide extended FDIC coverage beyond legal limits by utilizing multiple partner banks, offering increased protection in case of a bank failure.
  • Interest Earning: One of the primary draws is the ability to earn high-yield interest, similar to online savings accounts.
  • Services: Access to popular banking services, including direct deposit, online bill pay, and fee-free ATM networks.

Cash Management Accounts vs. Checking Accounts:

  • Interest Earning: CMAs often offer higher-yield interest compared to checking accounts.
  • Similar Services: Both CMAs and checking accounts provide similar services like access to a checkbook, ATM cards, and online/mobile account management.
  • Enhanced Connectivity: CMAs, typically found at investment firms and robo-advisors, offer enhanced connectivity by linking accounts to investment accounts, allowing quick fund transfers and automation of investments.
  • Fees: Many nonbank financial institutions don't charge fees on CMAs, while high-yield checking accounts may have monthly maintenance fees or specific requirements.

Pros and Cons of Cash Management Accounts: Pros:

  • Banking and investment accounts under one service.
  • Easy access to funds.
  • Extended FDIC insurance.
  • Higher APYs than traditional banks.
  • Access to no-fee ATM networks.
  • Mobile and online account management.

Cons:

  • Rates may be lower than high-yield savings accounts.
  • Some may have high minimum balance requirements.
  • Limited access to joint or trust accounts.
  • No local customer support option.

Things to Consider:

  • APY: Compare the high-yield interest rates offered by different CMAs.
  • Minimum Balance Requirements: Check if there are any minimum balance requirements.
  • Fees: Verify if there are any fees associated with the CMA or linked brokerage account.
  • FDIC Coverage: Ensure you understand the FDIC insurance coverage provided.
  • Services: Assess the included services such as check-writing and fee-free ATMs.
  • Customer Service: Check the available options for customer support.
  • Investment Services: Confirm that the CMA is linked to a brokerage firm or robo-advisor that aligns with your preferences and trust.

Is a Cash Management Account Right for You? CMAs are suitable for individuals who prefer consolidating their banking and investment activities in one place. They are most beneficial for those comfortable with online or mobile banking. If you value the idea of seamless money management and are open to conducting all banking activities online, a cash management account could be a fitting choice. However, if you prefer keeping your bank accounts separate from investments, exploring high-yield savings or checking accounts from online banks might be more suitable for you.

What Is A Cash Management Account? (2024)

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