Cash management accounts: How they work and what to know

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In a Nutshell

A cash management account is a type of financial account that combines banking features, such as check writing and interest-earning savings, with investing capabilities. But investment brokerages, not banks, typically offer CMAs.
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If you like the idea of a one-stop-shop account that can handle your checking, savings and investment needs, you might consider a cash management account.

CMAs are generally offered by investment brokerages. They typically offer banking-style features like checks, debit cards and the ability to easily move money into your investing accounts. Plus, CMAs have features such as higher interest rates, so they might appeal to you if you’re looking for an account to safely park large amounts of cash until you’re ready to invest or use it.

But cash management accounts may not be for everyone since they can come with high minimum balance requirements and monthly maintenance fees. Let’s take a look at how cash management accounts work and the pros and cons of opening one.



What is a cash management account?

A cash management account is a financial account where you can safely store your money (even large amounts), access it as you would with a checking account, earn interest like a high-yield savings account and easily move funds into investments when you want to.

Generally, banks and credit unions don’t offer CMAs. Instead, you can usually find one through a brokerage.

How do cash management accounts work?

Brokerages that offer cash management accounts typically partner with traditional banks to provide banking services, including traditional checking account services, higher interest and FDIC insurance coverage.

Any uninvested money in your cash management account is regularly swept into accounts at traditional banks that partner with the brokerage holding your CMA. This process typically happens overnight, and once your funds are in a partner bank account, they will be insured by the Federal Deposit Insurance Corporation. During this transition process, your cash won’t be FDIC-insured, but your money could still be protected by the Securities Investor Protection Corporation, as long as your brokerage is a member.

CMAs typically offer the following features:

  • Check writing
  • Debit cards
  • Ability to earn interest (annual percentage yields may be higher)
  • FDIC insurance through partner banks (often more than $250,000)
  • Option to move cash into investments (offered by the CMA brokerage)

Though cash management accounts aren’t bank accounts, they have many of the same services you’d find with checking accounts, such as bill pay and a debit card that you can use to make purchases or withdraw money from an ATM. Like a savings account, you’ll also have the ability to earn interest on the cash you keep in your CMA — often at higher-than-average rates. If you also want to invest your money, CMAs make it easy to move cash directly into the investment accounts the brokerage offers. Investment options may include certificates of deposit, brokerage accounts or crypto currency.

How does FDIC insurance work with cash management accounts?

Unlike a bank or credit union, the money in your cash management account isn’t directly insured by the FDIC. But because CMAs typically sweep uninvested cash into multiple accounts at multiple partner banks every day, coverage limits often exceed the FDIC insurance limit of $250,000. Some CMAs may offer FDIC coverage on $1 million or more.

Who regulates cash management accounts?

FINRA, an organization that works with the Securities and Exchange Commission to monitor the activities of U.S. brokers, oversees the compliance of U.S. cash management accounts. FINRA ensures that brokerages offer complete transparency to cash management accountholders, including information about FDIC coverage, account structures and risk.

How much does a cash management account cost?

The costs associated with cash management accounts can vary depending on the brokerage. Types of fees may include monthly fees, and you may have to keep a minimum balance in your account.

Here are some examples of the fees and minimums you may find with a cash management account.

Cash management account Monthly fees Minimum balance requirement Other fees
Betterment None None for most accounts, but $100,000 minimum for Premium plan 0.25% on invested balance, plus fees ranging from 0.03% to 0.50% on funds your portfolio invests in

 

0.25% management fee on retirement accounts

0.40% Premium account phone support on invested balance

Reimbursable ATM fees

Fidelity Cash Management Account None None Reimbursable ATM fees
Morgan Stanley CashPlus $15 (Premier Account) or $45 (Platinum Account) if you don’t meet the monthly minimum deposit or daily balance requirements

 

Morgan Stanley investment relationship required to avoid monthly fee

$25,000 or $2,500 monthly deposit, or Social Security deposit in any amount Reimbursable ATM fees
SoFi Money Non None Third-party out-of-network ATM fees may apply, but will be reimbursed

To avoid surprises, check the fine print for your account to see which fees you may be responsible for and what services are free. There may even be some reimbursable costs, like ATM fees. But note that some cash management accounts may require minimum account balances, which can be quite high.

What are the pros and cons of cash management accounts?

Like any financial product, cash management accounts have their advantages and disadvantages. Here’s a closer look at some pros and cons of a cash management account.

Pros

  • Investment options — Auto investing and other investment features make it easy to invest your cash.
  • High interest rates — Some cash management accounts let you earn interest on your account balances.
  • Similar to checking or savings accounts — Easily pay bills, send checks, make deposits and use a debit card.
  • FDIC insurance available through partner banks — Your cash is insured by the FDIC through partner banks, and you typically get protection on amounts higher than $250,000.

Cons

  • Minimum balances — Some CMAs require a minimum balance in your account.
  • Monthly maintenance fees — You might have to pay a fee each month for your account.
  • Not directly FDIC insured — Since your cash is FDIC-insured only when it’s swept into a partner bank account, it may not be protected unless the CMA is insured with the Securities Investor Protection Corporation.

Where can I find a cash management account?

Generally, traditional banks and credit unions don’t offer cash management accounts. Instead, if you want to open a cash management account, look to nonfinancial institutions, such brokerage accounts or online-only financial service providers.


What’s next?

If you’re interested in opening a cash management account, do your homework first. Consider comparing several different cash management accounts from different providers to see how they stack up to your needs and financial planning goals.

Research their interest rates, fees, add-ons, ATM networks and any interest options that may come with the account. Consider the types of investments that may be available with a CMA, such as mutual funds, stocks or certificates of deposit. It may also be helpful to consider the program banks the CMA partners with.

When you’re ready to apply for a cash management account, check to see if the cash management account you’re interested in has an online application process or if it requires you to be an existing brokerage customer to apply.


About the author: Sarah Archambault is a freelance writer based in New England. She enjoys learning new ways to spend money wisely and helping others figure out how to make smart financial decisions. Sara… Read more.