Guide to Cash Management Accounts (CMAs)
A cash management account or CMA is a financial account offered by brokerage firms that combines some of the features of savings and checking accounts. Like a savings account, CMAs pay interest (often more than you would earn in a standard savings account). Like a checking account, CMAs provide access to checks and/or a debit card. In addition, CMAs are typically linked to brokerage accounts, making it easy to transfer funds you want to invest.
While CMAs can be convenient, they may also come with some potential downsides, such as monthly fees, minimums, and a lack of in-person banking options. And, you may be able to earn a higher interest rate elsewhere.
Is a CMA right for you? Our simple guide to cash management accounts can help you find out.
Key Points
• Cash management accounts, or CMAs, are offered by brokerage firms and combine checking and savings features.
• These accounts pay interest and offer easy fund transfers for investments.
• CMAs typically allow you to access and manage your account online, but may not offer branches you can visit.
• Pros include simplified money management and higher-than-average interest rates.
• Before opening a CMA, consider customer service, minimum balance requirements, and investment options.
What Are Cash Management Accounts?
Let’s explore what a cash management account is exactly. A CMA or cash management account provides a solution for managing your cash flow and your money. The cash inside the account usually earns interest, so your money can grow over time. You also may have checking-writing capabilities, debit card access, or a combination of both.
Some of these nonbanking institutions charge low or no fees, another attractive aspect of using a cash management account. However, they typically make their money by charging fees for other services, such as investing, retirement planning, or financial planning services.
While traditional banking accounts have similar benefits, the biggest draw to a cash management account is that you can bank and invest with one company. This way, you’re not toggling back and forth between several companies or platforms to manage your money.
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How Do Cash Management Accounts Work?
Now that you know what a CMA is in big-picture terms, let’s drill down on how they work. Cash management accounts are interest-earning accounts that offer a safe place to keep your cash. Since investment firms and robo-advisors are not banks, they don’t keep your money at their financial institution. Instead, they partner with several banks and spread your deposit out among them.
As with traditional bank accounts, account holders can deposit funds, withdraw funds, and transfer money. You also typically have online access to your account, making it easy to check on and manage your CMA.
In addition, CMAs typically earn interest like savings accounts and have checking account capabilities. Therefore, they can act as a way to merge these accounts into one. However, some CMAs may not have features of both accounts, so check with the institution to determine what features are available.
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What Are the Pros of Cash Management Accounts?
Understanding the benefits of using a cash management account can help you determine if this is the right banking solution for your needs. With that in mind, here are several advantages of using a cash management account.
Convenience
The most significant pull for consumers to open a cash management account is that they can keep their investments and banking under one umbrella. Keeping everything in one place can simplify your money management efforts.
Traditional Banking Features
When you open a cash management account, you typically have access to traditional banking features like:
• Direct deposit
• Complementary ATM networks
• Electronic bill pay
• Third-party payment site access
But before you open an account, make sure you check with the institution about their banking services. This way you can ensure they have everything you need.
FDIC Insured
The Federal Deposit Insurance Corporation (FDIC) protects your banking deposits from losses up to $250,000 per depositor, per insured bank, for each account ownership category.
So, in the unlikely event that your bank should fail, you can recover your funds (up to the insured limit). While nonbanking firms can’t offer FDIC insurance directly, their partner banks can extend coverage. Since nonbanks spread funds across several partner banks, each can offer up to $250,000 of FDIC insurance per depositor.
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What Are the Cons of a Cash Management Account?
CMAs also come with some potential downsides. Here are some points to keep in mind as you decide whether a CMA is right for you.
Lower Interest Rates
While these accounts do offer some earnings, you will often find better rates at online banks. If you are planning on parking a large sum of cash in an account, it can literally pay to explore your options elsewhere and see what annual percentage rates (APYs) are available for online savings and checking accounts. You may find a better place to park your short-term savings than a CMA.
Recommended: APY vs. Interest Rate: What’s the Difference?
Fewer Features
Cash management accounts may not offer all the conveniences that come with standard checking accounts, such as bill pay, and may not fully replace a checking account.
No Physical Branches
Many cash management accounts are offered by online brokerages and robo-advisors, which means you won’t have brick-and-mortar locations to visit. If you are the kind of person who prefers personal interaction, this may be a significant issue for you.
Cash Management Accounts vs Checking Accounts
While cash management accounts offer similar services and features to traditional bank accounts, you might wonder what the differences are. If we break down CMAs compared to checking accounts further, these features are worth noting.
• Maintenance fees. Some CMAs don’t charge maintenance fees, but others may charge monthly fees routinely or when your balance dips below a certain threshold. This is also the case with traditional checking accounts.
• Interest earning. Many cash management accounts pay interest, and rates are often better than what you could earn in a standard savings account. This gives CMAs an edge over regular checking accounts, which typically pay little or no interest.
• Account integration. Investment firms and robo-advisors usually offer cash management accounts, as well as brokerage, or investment, accounts. You can usually link your CMA with your brokerage account, making it easy to move money and automate contributions. Traditional banks may also offer retirement and investment services. However, that’s not their primary business. Also, if you have your bank accounts and investment accounts under different roofs, there may be a time lag for transactions, which usually doesn’t happen with CMAs.
Considerations When Comparing Cash Management Accounts
If you’re thinking about opening a CMA, it’s a good idea to shop around and compare your options. Here are some things to keep in mind.
Customer Service
When you need an issue resolved with your money, it’s nice to know customer service is there to help. Check to make sure that the company you’re considering offers a robust customer service solution to assist you with all of your questions or concerns. For online firms, check out the hours that support is available and find out if you’ll be interacting with a human or an automated assistant.
Minimum Balance Requirement
CMAs can have minimum balance requirements to avoid fees and/or keep the account active. Therefore, you’ll want to determine these requirements in advance to see if you have the appropriate sum of cash to deposit.
Investment Management
Most of the institutions that offer cash management accounts offer investment services. If you’re looking to use their investment service, make sure you select a company you trust and feel comfortable with. You’ll also want to ensure the investments offered are suitable for your needs.
Is a Cash Management Account a Good Fit for You?
A CMA can be ideal for people who like to manage their investments and bank accounts under the same umbrella. It may make managing your money somewhat simpler and smoother.
But for those who feel a bit uncertain about using online institutions or mobile apps to complete their daily transactions, a traditional bank account may be a more viable solution. Also, if you would prefer to separate your investments and banking needs, a high-interest checking or savings account may make more sense that stashing your funds in a CMA.
The Takeaway
CMAs are interest-earning alternative solutions to traditional bank accounts like checking and saving accounts. Since investment firms usually offer CMAs, you can keep your investments and banking needs in one place, streamlining your money management efforts. As with most services, there are pros and cons to these accounts. Determining whether one is right for you will depend on your money management style and goals.
If you feel more comfortable with a savings and checking account held at a bank, SoFi offers a smart, money-savvy solution. Our online bank accounts, when opened with direct deposit, are fee-free and earn a competitive APY. Qualifying accounts can even access their paycheck up to two days early. We think it’s a great combination of convenience and money-growing features that you’ll love.
Ready to bank better? Come see what SoFi offers.
FAQ
What is the purpose of a cash management account?
Cash management accounts give consumers a way to earn interest and complete everyday banking transactions (like making purchases with a debit card and writing checks) while managing investments, all under one roof.
What type of account is cash management?
A cash management account is like a traditional bank account, except it’s offered by a non-banking firms, like an online investment firm or robo-advisor. You can complete transactions (direct deposit, withdrawals, check writing, etc.) and earn interest in the same way you would with a traditional checking or savings account.
Is a cash management account the same as a money market account?
No. While cash management accounts and money market accounts have similar features (like earning interest and providing access to debit cards and/or checks), they are not the same. Banks offer money market accounts, while nonbanks like brokerage firms and robo-advisors offer cash management accounts.
About the author
Ashley Kilroy
Ashley Kilroy is a seasoned personal finance writer with 15 years of experience simplifying complex concepts for individuals seeking financial security. Her expertise has shined through in well-known publications like Rolling Stone, Forbes, SmartAsset, and Money Talks News. Read full bio.
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