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Checking and savings accounts aren't your only options when you want to manage your money efficiently. Cash management accounts (CMAs) offer some of the best features of checking and savings accounts combined, although you won't find a CMA at your local bank.
Cash management accounts are held at non-bank institutions like investment or brokerage firms. CMAs typically earn higher interest rates than regular savings accounts, with features that allow you to access and use your money, such as check-writing, debit cards or online bill pay. Before moving your checking and savings account balances into a CMA, it's important to understand the key differences between these accounts and bank accounts—and how each might work best for you.
How Do Cash Management Accounts Work?
CMAs sweep your money into one or more accounts at a partnering bank (or banks). Your money earns interest and, because it's ultimately held at a bank, is generally insured by the Federal Deposit Insurance Corp. (FDIC). In fact, your CMA balance may be FDIC-insured up to a much higher limit if it's held in multiple accounts at multiple banks—an additional benefit for people with more than $250,000 in liquid cash. (The FDIC limits its coverage to this amount per person, bank and ownership category.)
CMAs combine the features of checking and savings into a single account. Unlike most checking accounts, however, a CMA earns interest. And unlike most savings accounts, a CMA can be used to make payments. If you like the idea of having all your money in one interest-earning account, a CMA may be worth investigating.
Because there's no single bank—or bank branch—attached to your CMA, most or all of your account management happens online. Account features can vary quite a bit between accounts and financial institutions as well. Some accounts come with debit cards, fully featured mobile apps, direct deposit capability and digital wallet compatibility, but some don't. Be prepared to do some shopping before opening a CMA.
Pros and Cons of Cash Management Accounts
Is a CMA for you? Consider these pros and cons of cash management accounts to see where your needs might fit.
Pros
CMAs offer a range of benefits, mostly centered around efficiency. Here are a few to start:
- Higher limits on FDIC coverage: By sweeping your money into multiple accounts at multiple banks, your cash management account may allow you to keep more than $250,000 per account holder in your CMA without exceeding FDIC limits.
- Competitive interest rates: Though you may find higher interest rates on high-interest savings accounts or certificates of deposit (CDs), the annual percentage yields (APYs) you'll find on cash management accounts are generally much higher than what you might find on regular savings.
- Fewer fees: Some CMAs don't charge account maintenance fees, ATM surcharge fees or other transaction fees you might find at a bank. This isn't universally true, though, so read the fine print.
- One account to do it all: Instead of maintaining separate checking and savings accounts, you can earn interest, pay your bills and invest all in one place, eliminating the need to transfer money back and forth.
- Earn interest on your checking account balance: Many bank checking accounts don't earn interest. If you maintain a substantial checking account balance, earning interest on it could make sense.
Cons
A CMA offers many of the same functionalities as a bank account, but with a few important differences. The following potential drawbacks may give you pause.
- Lack of personalized service: A strong online focus for most of these accounts means you may not get much face-to-face interaction.
- FDIC insurance gaps: Although money is typically swept into partner bank account(s) within a day, your money may not be covered by FDIC insurance while it sits at your investment firm. In the unlikely event that something happens during this time, your money might still be covered by Securities Investor Protection Corp. (SIPC) insurance, but you may want to ask the financial institution before opening and funding your account to understand how this might work.
- Varying features: Differences between brokerages and accounts mean you need to shop actively for the features you want.
- No separation for savings: Strategically speaking, money kept in a separate savings account may be less likely to be spent accidentally. It's also easier to watch your savings grow.
- Requirements and fees: While balance requirements and account fees aren't universal, some CMAs have minimum balance or initial deposit requirements; others may charge maintenance, transfer or account closure fees.
- Better interest rates can be had: You'll typically do much better in a CMA account than in regular savings, but APYs on CMAs may not be the highest available. Shop and compare rates before committing your funds.
Cash Management Accounts vs. Checking
Simply put, some cash management accounts function very much like checking accounts—and some don't. There are also differences between banking at a bank or credit union and using an investment or brokerage firm to manage your cash. Here are a few things to consider.
| Checking Accounts vs. Cash Management Accounts | |
|---|---|
| Checking Account | Cash Management Account |
| Full range of deposit and payment options | Earns interest |
| FDIC insured up to $250,000 per person and account ownership type | May exceed $250,000 in FDIC insurance protection by sweeping funds into multiple bank accounts |
| Allows for separation between checking and savings | Eliminates the need for separate checking and savings accounts |
Banks vs. Brokerage Firms
Should you hesitate about choosing an investment firm over a bank for a checking and savings equivalent? The answer may depend on how you use your bank—and how much you like them.
- Banks serve your transaction and savings needs. In addition to savings and checking accounts, banks and credit unions also offer loans and credit cards, sometimes with incentives for customers who have other accounts. If you value having a relationship with your financial institution, you may miss them when you go.
- Brokerage firms may suit investors and digital natives. Streamlining is key when you bank with an investment or brokerage firm. A cash management account puts your checking and savings funds into a single account, potentially held at the same firm that manages your investments. If you're an active investor, you might like being able to make investments directly from your cash account. Additionally, folks who use digital tools exclusively to manage their money may be less likely to miss the personalized service of a bank or credit union.
How to Choose a Cash Management Account
Interested in learning more? Here's how to better understand your options when it comes to CMAs and find an account that may be right for you.
- Find a financial institution. Your brokerage or investment advisory firm is a good place to start if you currently have an investment account, but don't stop there. Search online for alternatives to get a sense of what else is available.
- Compare APYs. Finding a competitive interest rate means looking at multiple options, including high-yield savings accounts, money market accounts, interest checking accounts and CDs at traditional financial institutions.
- Shop for features. Think about how you want to use your CMA and shop proactively for the features you need: debit card, mobile check deposit, online bill payments, direct deposit and so on.
- Check FDIC insurance coverage. If your balance is likely to be more than $250,000, make sure your entire account balance will be covered under FDIC insurance. Also ask whether any balances held in your CMA at the brokerage company will be insured by the SIPC.
- Consider convenience. How easy (or difficult) is it to access information and get help, both online and by phone? How fast will your money transfer between accounts? How many ways can you access it, especially if you need cash fast?
The Bottom Line
A CMA is a bank account alternative that may replace your traditional checking and savings accounts while earning you competitive interest on your entire balance and offering a higher limit on FDIC insurance coverage. If you'd like to streamline your finances, a CMA might help you simplify, especially if you are an active investor (or, say, a retiree who receives regular distributions from a retirement investment account).
Finding a CMA online is easy, but investigate multiple options to find the one that's right for you. Ultimately, however, you may also decide that conventional checking and savings accounts—and the banking relationship that goes with them—are a better fit for you.