What Is a Cash Management Account?
A cash management account is a type of deposit account that combines the features of several other types of accounts — checking accounts, savings accounts and investment accounts. Rather than being offered by traditional banks, cash management accounts are usually offered by brokerage or investment firms.
A cash management account seeks to simplify your banking by combining your checking and savings features and connecting to your brokerage account. Some people might find they can fully replace their other accounts with a cash management account, while others may prefer it simply as a complement to their existing accounts. Either way, cash management accounts have some key benefits.
While the features of a cash management account vary depending on the financial institution, they often include interest on your balance, a debit card or ATM access, online payment services and more.
How Does a Cash Management Account Work?
Cash management accounts are generally offered by non-bank financial institutions. They allow account holders to access more features in fewer accounts.
Savings Account Features
First, cash management accounts have some features of savings and money market accounts. They provide a safe place to store your money, and many even allow you to earn interest.
In fact, some cash management accounts have comparable interest rates to some of the popular high-yield savings accounts.
Checking Account Features
Next, cash management accounts have some features of checking accounts. For example, many offer debit cards, ATM access and check-writing privileges. You can also often pay your bills directly from the account.
Brokerage Account Features
Finally, cash management accounts often go hand-in-hand with brokerage accounts. Some of these accounts are offered by brokerage firms, and if you have a cash management account and brokerage account with the same provider, you can easily move money back and forth to purchase investments.
Security of Cash Management Accounts
Once you’ve deposited money into your cash management account, the non-bank financial institution that offers it will hold your money in accounts at actual banks — and because it’s being held at a bank, your deposits are FDIC-insured.
Money held at a brokerage firm is often also protected by SIPC insurance.
How Much Interest Does a Cash Management Account Earn?
The amount you can earn in a cash management account varies significantly from one financial institution to the next. Some accounts offer a return that’s on par with some of the top high-yield savings accounts, while others are considerably lower.
The table below shows the rates on some of the most popular cash management accounts:
| Account Provider | APY |
|---|---|
| Wealthfront | |
| Betterment | |
| Empower | |
| Fidelity | |
| Aspiration | |
| Charles Schwab |
Pros and Cons of Cash Management Accounts
It might seem like cash management accounts are the perfect financial solution, but it’s important to understand both the benefits and drawbacks before you open any account.
Pros of Cash Management Accounts
- Simplicity: Cash management accounts can help simplify your finances by allowing you to replace multiple other accounts with just one.
- Flexibility: These accounts have features of all different types of accounts and even make it easy to send money to your investment account instantly.
- FDIC protection: The money in your cash management account is usually FDIC-insured, thanks to the banks these non-bank entities partner with.
- High interest rates: Many cash management account APYs are competitive with some of the top high-yield savings accounts.
Cons of Cash Management Accounts
- Missing features: Cash management accounts aren’t offered by full-service banks and are missing some of the features you might expect from a traditional bank account.
- Not always the best rates: While their rates are competitive, you can still find better rates in a high-yield savings account.
- Online access only: Most cash management accounts are online only and don’t have branches the way a bank or credit union might.
- Monthly fees: Some cash management accounts charge monthly fees or have minimum monthly balance requirements.
Things To Consider When Choosing a Cash Management Account
So you’ve decided to open a cash management account. Now it’s important to compare their various features to make sure you’re choosing the best option for you. Here are a few things to consider:
Features
First and foremost, make sure the account you open has the features you need. Desired features might include a debit card, ATM access, check-writing privileges, online bill pay and more.
APY
If you want to earn interest in your cash management account, shop around to find one with a high APY — and make sure you read the fine print to understand what requirements you need to meet and how much of your balance that high APY applies to.
Monthly Fees
Look into whether each cash management account charges monthly fees and whether there are ways to avoid them, such as by maintaining a certain monthly balance.
FDIC Insurance
Most cash management accounts are FDIC-insured, but it’s important to double-check this before you open an account and deposit your money.
Minimum Balance Requirements
Check if the cash management account you’re considering has a minimum balance requirement and, if it does, whether you believe you’ll be able to reach it each month. Failing to maintain that minimum balance can result in high fees or even the closing of your account.
Connectivity
Many cash management accounts are offered by brokerage firms and can connect directly to your brokerage account. It may be best to choose an account with the same brokerage firm.
At the very least, choose one you can easily connect to your other accounts for online transfers.
The Bottom Line
A cash management account is a unique product designed to solve the problem of needing many different accounts that each do something different. However, it may not be the right choice to fully abandon your checking and savings account for a cash management account. While some people might find they have enough features to serve as their sole bank account, that won’t be the case for everyone.
That being said, cash management accounts do provide an excellent place to park your money before you invest it. You can open a cash management account with your current brokerage firm and transfer money into it until you’re ready to move that money into your brokerage account and start investing.
Rates are subject to change; unless otherwise noted, rates are updated periodically. All other information on accounts is accurate as of June 2, 2023.
