What Is a Cash Management Account?

What Is a Cash Management Account? 

Chances are that you’ve encountered cash management account (CMA) offers from your online broker or robo-advisor, and they might seem like the perfect solution for all your cash needs. Before you open an account and put all your money into it, you should take the time to understand what they are and how such accounts can benefit you and your finances. 

A cash management account has similarities to bank checking and savings accounts, as well as high-yield cash accounts, but varies among providers in fees, investment minimums, products, and services. Most CMAs deliver a one-stop financial portal with checking and higher-yield savings options, along with easy transfers between brokerage and cash accounts. Some financial firms enable cash sweep or automatic transfers of the cash in your brokerage account into the CMA. 

You’ll typically have access to a debit card with ATM access. Cash management accounts are safe and might be protected by FDIC insurance or SIPC insurance that covers your investments and cash. Find out the pros and cons of a cash management account and whether this type of financial account is right for you.

Pros and Cons of Cash Management Accounts

How a Cash Management Account Works

A cash management account is distinct from a bank account. Although not required, you may open a CMA at the same institution where you have an investment account, whether that is at a brokerage like Fidelity or a robo-advisor such as Wealthfront or Betterment. This makes transfers between investment and cash accounts easier. 

These accounts come in two varieties:

• Bank or money market sweep account: The cash from your investment account is automatically transferred or "swept" into the CMA and invested in a bank account or money market mutual fund.
• Stand-alone CMA: The account is funded with your contributions and not automatically swept from an investment account. There may also be a choice of the type of cash account available (such as individual or joint). 

How to Open a Cash Management Account

Opening a cash management account online varies by financial institution. Some are more streamlined than others, but the majority of the brokerage platforms that offer this service make the account pretty easy to open.

The typical steps to open a cash management account include:

• Choose the type of account: individual, joint, trust, or other.
• Input personal information such as Social Security number, date of birth, address, phone number, and employment details.

If you open a cash management account at a traditional investment broker, then you can access live customer service for guidance. Robo-advisor CMA accounts might not offer this service.

Once the account is open, you’ll receive your account number, debit card, and links to account details. You may be able to choose the type of cash account, such as a government cash management account, which invests in government securities, or a standard account. In order to receive high interest rates, your cash might be invested in several partner banks, which also provide FDIC insurance for your funds. In other cases, your funds will be protected by SIPC insurance.

What to Look for in a Cash Management Account 

Look for a cash management account with high interest rates, especially if you expect to keep more than a few thousand dollars in the account. If you are using the CMA to consolidate all of your cash accounts, then make sure that the account offers:

• High interest rates
• Checking
• Bill pay
• Direct deposit
• Automatic fund transfers
• Overdraft protection
• Fee-free ATM access
• Easy transfers between investment and CMA accounts
• Mobile check deposit

While not as common, some CMAs have special features such as free wire transfers and ATM reimbursements. However, beware of high fees and minimum deposit requirements. If the CMA is in addition to your bank savings and checking accounts, then consider what features are most important to you. 

FDIC and SIPC Rules and Limits

If you’re worried about whether cash management accounts are safe, these legal protections should calm your fears. A CMA account might offer either Federal Deposit Insurance Corporation (FDIC) or  Securities Investor Protection Corporation (SIPC) insurance, or both. The Federal Deposit Insurance Corporation is a U.S. government agency that protects your deposits against bank failure. The bank provides each account with up to $250,000 of coverage. The FDIC insures only banks, not credit unions, which are insured by the National Credit Union Administration. 

The Securities Investor Protection Corporation protects the funds in your brokerage firm from failure. The securities in your account are protected up to $500,000. The $500,000 protection includes insurance for the cash in your account. 

The FDIC insurance will protect your cash, up to $250,000, should the bank fail, while the SIPC insurance protects the value of your investments and cash up to $500,000, which includes $250,000 coverage against loss for cash. Many accounts offer additional insurance protections through other insurance providers for higher amounts as well. There is no insurance that protects securities such as stocks, bonds, and funds from declines in investment values. 

Cash Management Accounts vs. Other Accounts

Whether to open a cash management, checking, savings, and/or money market account depends upon your particular needs. The interest earned on savings, checking, and CMA accounts is taxable.

• Checking accounts: These accounts are available from banks, credit unions, investment brokerage firms, and some robo-advisors. You can make deposits and withdrawals online, in a branch, through check writing and deposits, auto bill pay, and ATMs. Normally, checking accounts offer ultra-low or no interest payments and might charge a monthly fee. 
• Savings accounts: Available from banks or credit unions, savings accounts are used for short- to intermediate-term cash needs and typically pay an interest rate that is lower than CDs or money market mutual funds. Some financial institutions also offer high-yield savings accounts. 
• Money market accounts (MMAs): A money market account is an interest-bearing account at a bank or credit union that typically pays a higher interest rate than a savings account. A money market account can combine the benefits of a checking and savings account by offering limited check writing and an ATM debit card. An MMA might limit the number of transactions, require a minimum balance, and/or charge fees. An MMA shouldn’t be confused with a money market mutual fund, which is a short-term investment fund that holds short-term debt and pays a higher interest rate. 

Is a Cash Management Account Right for You?

Opening a cash management account can be in addition to or in lieu of a bank savings and checking account. Whether the cash management account is right for you is a personal choice and depends upon your banking needs. Before choosing the best cash management account for you, consider your needs. Do you need bill pay, many monthly checking transactions, and a neighborhood branch to visit? If so, the CMA might not fit your needs. 

If you want to consolidate all of your financial accounts with one provider, then a cash management account might be the perfect solution. For those who worry whether a cash management account is safe, the answer is yes. The access to extended hours of customer service at most major investment firms is another reason to consider a CMA. 

Compare the Best Cash Management Accounts

The Bottom Line

Cash management accounts vary by provider and offer a range of interest rates, fee structures, products, and services. The best cash management accounts fulfill your short and intermediate-term cash needs, integrate with an investment account, and deliver the high yields and features that you need. The biggest CMA drawbacks can be high annual fees and low relative interest rates. If you value convenience and have an investment brokerage account, then choosing a cash management account with low or no fees and high interest rates might simplify your financial life. 

Frequently Asked Questions (FAQs)