If you’re looking for a way to simplify your finances and earn more interest, consider a cash management account (CMA). An alternative to traditional bank accounts, CMAs provide a panorama of your finances and allow you to freely access your funds like a checking account does, while earning the interest you’d expect on a savings account.
What is a cash management account?
CMAs are similar to checking accounts and pay more interest than savings accounts. But they’re available at brokerage firms, not banks.
In one account you can see everything from your day-to-day purchases to your long-term securities. Robo-advisors, investment firms and mobile trading apps all offer CMAs, including big names like Charles Schwab, Fidelity and TD Ameritrade.
In most cases, there are no fees and your deposits are insured up to or beyond normal federal limits. If the brokerage partners with a bank, your CMA is typically protected up to $250,000 via the Federal Deposit Insurance Corporation (FDIC).
But remember, said CFP and president of MDL Financial Group Gabriel Lalonde, only some CMAs are FDIC insured. Others are covered by the Securities Investor Protection Corporation (SIPC), but it’s important to confirm that the account is protected before opening it.
How does a cash management account work?
When you deposit your money in a CMA, the funds are easily accessible for your day-to-day use. You can swipe a debit card, write checks, pay bills online and, while it’s in your CMA, your cash typically earns a competitive deposit yield.
Some CMAs also offer automated tools, including ones that will invest a portion of your deposits for you at a percentage that you set.
Pros and cons of a cash management account
Pros
- Simplified money management. You can manage your banking and investment accounts in one place. This means you’ll have fewer accounts to keep track of.
- Easy set up. Opening a CMA online is straightforward, similar to opening a bank account. If you already have an account with the brokerage, it should be a breeze.
- Convenient access. You can potentially access your CMA funds online, via an ATM, mobile app, debit card or check.
- Competitive interest rates. CMAs tend to pay higher interest rates than a standard savings account. For instance, in June 2023, a Wealthfront Cash Account had a 4.55% APY, well above what you’ll find in a typical savings account.
- Checking account capabilities. CMAs usually come with a debit card and checks, allow you to make and receive electronic payments, and don’t limit the amount of withdrawals you can make in a month.
Cons
- Potential fees. While most CMAs don’t charge fees, some do. Fees can include minimum balance fees, monthly maintenance fees and wire fees. Shop around for different providers and look for one with limited fees.
- Limited earning potential. CMAs are low-risk, but that also means they offer less profitability than some security investments—you could be missing out on higher yields.
- Possible high minimum balance requirements. Some CMAs can require you to make a high minimum deposit to open the account and call for you to maintain a large minimum balance to earn rewards or avoid fees.
What to consider before opening a CMA
Exactly what you consider vital for your CMA will vary, but here are the elements to look at and weigh.
Investing services. To fully take advantage of a CMA, it needs to be at a brokerage company that you use for your investments. It could be the firm that supports your employee retirement account or a brokerage you use for personal investing.
Access. Consider how you’ll need to access your account. Do you primarily use a debit card? Does the app allow mobile check deposit? Are fee-free ATMs essential?
Fees. Before signing up, look at a copy of the CMA’s fee schedule. Most CMAs don’t charge any, but double check that this is true. If you’re looking to open an investing account along with your CMA, be aware of any fees associated with that account as well.
Minimum balance requirements. Ensure you have any necessary cash on hand to open the account or to hit a reward level you want.
Insurance. “Potential CMA holders should make sure that the account they are looking to open is FDIC-insured,”said Daniel Colston, CFP and chief executive of Upward Financial Planning. When your money is FDIC-insured, it’s protected if a bank or financial institution fails.
Rate. Finally, you want to find an account that offers a competitive interest rate so you’ll earn more interest on your deposited funds. Most CMAs advertise competitive rates, but some offer returns that aren’t much better than high-yield savings accounts.
Should you get a cash management account?
If you do the majority of your banking online, then a CMA may be a good option for you. It may be ideal if you’re looking to manage your banking and investment accounts in one place without needing to know multiple usernames and passwords.
However, CMAs aren’t right for everyone, especially if you have a cache of funds that you don’t need to access on a regular basis, you may get better returns by switching to a higher-yield savings or investment account.
“Most people are served well by regular banking services alone,” said Colston. “CMAs are best suited for individuals who want to earn a higher interest rate on their savings, while also having easy access to their funds through check writing or a debit card.”
Where to find a cash management account
Most brokerage firms and robo-advisors offer CMAs. Look at CMA options at any investment companies you may already be using for your retirement accounts or trading. You can also ask friends and family for recommendations.
Here are some of the largest CMA providers.
- Aspiration Spend & Save.
- Betterment Cash Reserve.
- E*Trade Cash Management.
- Fidelity Cash Management Account.
- Merrill Edge Cash Management Account.
- Schwab Bank Investor Savings™ account.
- TD Ameritrade Cash Management Services.
- Wealthfront Cash Account.
Keep in mind that you’re not tied down to just one account. You could open a CMA at each brokerage you use and split your funds. If you don’t like it or your needs evolve, you can always close the account and open a new one that can better serve you.
Frequently asked questions (FAQs)
Yes, one of the main benefits of a cash management account is that you can withdraw the money as you need it. Just make sure your provider doesn’t charge fees for transferring funds out of your account.
Some CMAs do come with minimum balance requirements—you’ll have to check with your provider to see what their requirements are. If you can’t meet the minimum balance requirements, there are plenty of CMAs with $0 balance requirements.
If you enjoy online banking and want to manage your banking and investment accounts in one account, then a CMA may be worth it. But it may not be the best fit for customers who prefer visiting a branch location.
