What is a cash management account?

Cash management accounts combine certain aspects of checking and savings accounts with features like competitive returns and virtually no fees. Cash management accounts are usually designed for people who hold large amounts of cash and want to keep it safe but easy to access.

What is a cash management account?

Cash management accounts are an alternative to traditional checking or savings accounts offered by brokerage firms and robo-advisors. They help clients keep large sums of money safe and desirable while paying interest.

Each cash management account is unique, but you usually have easy access to your funds in the form of a debit card and/or checkbook. These accounts typically transfer your funds to one or more accounts at a partner bank, and your funds are FDIC-insured. (FDIC) has a problem. Your account provider will disclose which banks they work with, although these may change over time.

Benefits of a Cash Management Account

There are generally several advantages to using a cash management account:

FDIC Protection

For consumers with large balances, a cash management account makes it easy to keep funds safe by insuring FDIC balances up to $1 million or more once funds are received by the program bank. At the same time, funds can be withdrawn through the Securities Investor Protection Corporation. (SIPC) can be protected.

Some people have higher-than-average interest rates

Most cash management accounts pay higher interest rates than traditional checking and savings accounts at many banks. While you may find some banks have higher interest rates, cash management accounts offer most of the flexibility of checking accounts, often without paying interest.

Easy investment

Cash management accounts are usually offered by brokerage firms, and most allow you to easily invest the funds in your cash management account—a nice perk if you buy and sell securities frequently.

Flexibility

A cash management account usually allows you to withdraw funds easily. Many offer debit cards that you can use to withdraw cash or make purchases from ATMs, and some also allow you to write checks.

Disadvantages of cash management accounts

Consider these potential downsides before opening a cash management account:

Better prices can be found elsewhere

When you have a large cash balance, you want to get the best interest rate possible to maximize income and reduce the effects of inflation. Some online savings accounts offer better interest rates than cash management accounts. You can also get higher returns with low-risk or risk-free products like CDs and short-term investments like U.S. Treasury bills.

Lack of certain features

Most banks offer features like bill payment to checking account customers. Many money management accounts lack these useful money management features, so they may not be suitable replacements for traditional checking accounts.

May only be available online

Some cash management accounts are offered by online-only institutions. If you prefer to do your banking in person, a cash management account may not be right for you.

Not necessary for some people

A key feature of a money management account is the ability to insure funds above the typical FDIC limit of $250,000. But most consumers don’t have that much cash on hand, so there’s no need for this benefit.

Fees and Minimum Balance

Some companies that offer cash management accounts charge monthly fees or require higher minimum balances.

Cash Management Accounts and Other Accounts

Here are some key differences between cash management accounts and other regular accounts:

• Checking Accounts: Some cash management accounts are similar to checking accounts, allowing you to write checks, use debit cards, and make ATM withdrawals. Cash management accounts tend to pay higher interest rates than checking accounts, and many of these accounts have no interest at all.
• Savings Accounts: Competitive interest rates are available on both savings accounts and cash management accounts. But there are some big differences: Savings accounts typically limit your transactions to six per month, while cash management accounts can allow more. Some cash management accounts also allow checking, while savings accounts do not.
• Money Market Accounts: Both cash management and money market accounts may require higher minimum balances. Both types of accounts can be FDIC insured, but cash management accounts can have more than the usual $250,000 in funds.

Is a Cash Management Account Right for You?

Ask yourself these questions when considering opening a cash management account:

Do you do most of your banking online? Cash management accounts are often from online-only institutions, so you may need to be familiar with online banking to use them.

Do you use tools like online bill pay or peer-to-peer money transfers? Some cash management accounts lack these features, so you may have to stick with a traditional checking account to get these options.

How much cash do you have on hand? Cash management accounts are best for consumers with cash balances that exceed FDIC insurance limits. If you hold large amounts of money in checking and savings accounts, a cash management account may be a good option.

Best Cash Management Account

Here are some details about the different cash management accounts:

結論

Probably the main advantage of a cash management account is that it allows for higher FDIC insurance limits than standard savings accounts. This can make a cash management account a good choice for anyone with more than $250,000 in savings. It’s worth comparing cash management accounts to standard savings and checking accounts to find the one with the highest APY with all the features you want.

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