What Is a Cash Management Account?

Key takeaways

• A cash management account blends features of checking and savings accounts.
• Cash management accounts may earn higher interest rates than standard checking and savings accounts.
• Your cash management account balance is covered by FDIC insurance — sometimes beyond the standard coverage limit.

A cash management account (CMA) takes some of the best features of checking and savings accounts and rolls them into one account. It helps you manage your everyday spending, like a checking account, while earning interest on your balance, similar to a savings account.

These accounts are usually managed online and available through brokerage firms rather than traditional banks. Understanding their ins and outs can help you make the best choice for your needs.

How does a cash management account work?

A cash management account (CMA) functions like a hybrid checking/savings account, offering a convenient place to store your everyday spending money and savings. You’ll typically receive a debit card for direct access to your cash. Unlike traditional checking accounts that typically earn minimal or no interest, CMAs often earn an above-average annual percentage yield (APY), so you can earn interest on the money you don’t spend.

Take the Vanguard Cash Plus Account, for instance. This account offers one of the best cash management account rates — 4.50% APY as of August 6, 2024. This is significantly higher than the average checking account rate of 0.08% and the average savings account rate of 0.46%, according to Federal Deposit Insurance Corp. (FDIC) data as of August 19, 2024.

Cash management accounts are highly liquid, meaning you can easily access your money. They typically offer banking services that are similar to regular checking accounts. For example, the Fidelity Cash Management Account offers the following everyday banking services:

• Mobile check deposit
• Online and mobile bill pay
• Debit card
• Check writing
• Free online transfers between your Fidelity accounts and bank accounts

Cash management account pros and cons

Pros:

• Potentially higher interest rates: Cash management accounts usually offer above-average APYs compared to checking and savings accounts at traditional brick-and-mortar banks.
• Enhanced FDIC insurance: Some cash management accounts make sure all your funds with them are covered by FDIC insurance by dividing up your deposit between multiple banks. This setup can protect your money beyond the standard $250,000 coverage limit, offering protection for larger balances.
• Combined features of checking and savings accounts: Cash management accounts include perks of both checking and savings accounts. CMAs usually come with a debit card and check-writing for everyday money management while allowing you to earn interest on your savings.
• Potential integration with your investment accounts: If you prefer to do your everyday banking and investing in the same place, a CMA can help consolidate your finances under one brokerage platform.

Cons:

• May not always have the best interest rates: Some accounts, such as high-yield savings accounts, often provide higher APYs than CMAs. However, high-yield savings accounts probably won’t have the checking account features offered by CMAs.
• Minimum balance requirements: Some cash management accounts may require a minimum opening deposit or a minimum monthly balance to keep your account.
• Account fees: Though CMAs generally have low fees, some charges to watch out for include annual fees, monthly maintenance fees, minimum balance fees and transfer fees. These expenses will vary by financial institution.
• Limited branch access: Since many cash management accounts primarily function online, it’s not as easy to walk into a branch to get your banking done in person.

Is a cash management account right for you?

A cash management account might be right for you if you value liquidity, earning potential and the convenience of online and mobile banking services. Additionally, CMAs can appeal to people with large cash balances since they may offer higher FDIC insurance coverage limits.

Like with any financial product, it’s important to compare CMA rates, fees and account features from different providers to find the best fit for your needs.

Cash management account alternatives

Some options other than a CMA you might consider include:

• High-yield savings account: High-yield savings accounts are like regular savings accounts, except, as the name suggests, they usually offer higher yields. Unlike CMAs, you typically won’t receive debit card access, and there might be limits to the number of transfers you can make each month.
• Money market account: Some money market accounts offer higher APYs than traditional checking and savings accounts. Like CMAs, they may come with debit cards and check-writing privileges. However, like a savings account, your monthly withdrawals might be restricted.
• Certificate of deposit (CD): CDs are less liquid than CMAs because they require you to lock away your money for a fixed period of time, such as six or 12 months. In return, you usually receive a higher interest rate than standard checking and savings accounts. An exception is no-penalty CDs, which allow you to withdraw your money at any time penalty-free, though the interest rate may be lower than standard CDs.

Frequently asked questions

Are cash management accounts safe?

Yes, cash management accounts are generally considered to be a safe way to store cash. Your CMA balances are covered by FDIC insurance up to $250,000, with some CMAs extending coverage even higher than that.

What’s the difference between a cash management account and a savings account?

The main difference between a cash management account and a savings account is that a CMA usually comes with a debit card and check-writing privileges, unlike a typical savings account. Additionally, unlike CMAs, savings accounts may limit the number of transactions and withdrawals you can make per month.

Is a cash management account the same as a brokerage account?

No, a cash management account is not the same as a brokerage account. A CMA functions like a traditional checking and savings account, allowing you to manage daily transactions and earn interest. Brokerage accounts are used to buy and sell securities, such as stocks and bonds. While both types of accounts can be offered by brokerage firms, they serve different purposes.