If you’re looking for a place to help you manage your money, you might think of a traditional checking or savings account offered by a bank or financial institution. But that’s not the only option out there. Another option to consider is a cash management account. In this brief guide, we’ll break down what a cash management account (CMA) really is, the pros and cons, and how it compares to other types of savings accounts.
What Is a Cash Management Account?
A cash management account is a type of financial account typically offered by brokerage firms or financial institutions that aren’t banks. Like the name suggests, these accounts help you manage your cash.
Using a cash management account, you can easily spend and save your money and maximize it through investing. Many cash management accounts are offered by robo-advisors or brokerage firms. Consider the Fidelity Cash Management Account or SoFi Cash Management Account.
In many ways, a cash management account is similar to what you get with a bank. You may be able to score higher interest rates, but there’s no guarantee. Your money may be spread out at various partner banks but is easily accessible to you.
Why Use a Cash Management Account?
If you want to get higher returns and streamline your money so that your investments and cash are all in one place, a cash management account may be a good idea.
Cash management accounts often offer the same perks as banks, such as having a debit card to make purchases, or the ability to write checks (though we’re not doing much of that these days).
Another reason to go with a cash management account is if you want more FDIC coverage. The Federal Deposit Insurance Corporation (FDIC) insures up to $250,000 at traditional banks if the financial institution goes under. However, cash management accounts may be able to insure much more. Consider the Fidelity cash management account which insures up to $1.25 million dollars.
Cash management accounts are also attractive in that they typically refund any ATM fees, so if that’s usually an issue for you, opening up a CMA might be a good option.
Are Cash Management Accounts Good?
Cash management accounts are a good alternative to traditional checking and savings accounts and are a good option if you want to keep the cash you spend and save with the same company you keep your investments.
Aside from that, cash management accounts are very similar in function to traditional checking and savings accounts. You typically get access to a debit card, checks as well as mobile deposit.
Depending on the provider, you may get a higher interest rate on your accounts but not always, so it’s good to review and compare if you’re interested in opening a cash management account.
Pros and Cons of a Cash Management Account
Though cash management accounts are another option to house your money, like anything, there are pros and cons. Let’s review.
Pros:
Cons:
The main gain you’re getting from a cash management account is streamlining your money. While you could earn more in interest compared to traditional savings accounts, you might still be better off with a high-yield savings account.
You don’t have to use a cash management account as a replacement for a checking and savings account, but in addition to. But if you do replace those accounts, think about the pros and cons and what you’ll get out of it.
Should I Open a Cash Management Account?
Though cash management accounts could be convenient, you want to see if there are any fees, look at what’s insured and what’s not, and understand how much interest you can earn on your deposits.
For example, SoFi’s cash management account offers an APY of 0.25%. While that might be better than traditional savings accounts, when compared to online banks with high-yield savings accounts it falls short.
Cash management accounts are another place you can put your money. Whether you want to use one in addition to traditional bank accounts or as a replacement, consider the pros and cons, fees, amount insured, and interest you can earn. Whatever you choose, make sure your money is accessible and convenient and works for your lifestyle and financial goals.
