Cash management accounts, or CMAs, are cash accounts offered by wealth management, investment, and brokerage companies that provide some of the best features of checking and savings accounts.
CMAs offer a higher interest rate for their savings accounts with a wide range of advanced features.
Features
Cash management accounts (CMAs) are available at many larger banks and financial institutions, though not every bank. These accounts blend the best features of checking, savings, and investment accounts into one convenient package. Exploring options at traditional banks and non-bank financial service providers is a good idea.
CMAs offer a versatile alternative to traditional checking and savings accounts, and various types of non-banking financial institutions provide them, including:
- Online Investment Firms
- Robo-Advisors
- Mobile Trading Apps
These accounts are ideal for managing large balances, offering security and easy access to funds.
Some features of cash management accounts include:
- Higher Interest Rates: CMAs often provide higher interest rates than traditional checking accounts, although not necessarily higher than all savings accounts.
- Investment Options: CMAs allow investments in stocks, bonds, mutual funds, and more.
- Similar to Checking and Savings Accounts: CMAs include features like bill pay, checks, debit cards, account deposits, and ATM access.
- FDIC Insurance Through Partner Banks: CMAs provide FDIC insurance up to $250,000 per depositor, per insured bank, potentially allowing more coverage across multiple partner banks.
However, cash management accounts can have some drawbacks, such as:
- Monthly Maintenance Fees: While some CMAs have no monthly fees, others might charge for account maintenance.
- Minimum Balances: Some CMAs require maintaining a minimum balance.
- Not Directly FDIC-Insured: Funds are FDIC-insured only when held at partner banks.
- Customer Service Variability: The level of customer service can vary, with some providers offering limited face-to-face interaction, especially if the service is online only.
Benefits
Here are some of the benefits of CMAs.
Alternative to Traditional Cash Accounts
While the benefits offered by CMAs vary depending on the type of institution, they typically provide a checkbook, debit card, or both. Unlike traditional bank accounts, cash management accounts allow customers to manage their funds without switching between several accounts and apps.
Offer Little to No Fee Banking Services
Unlike traditional bank accounts, cash management accounts charge little to no service fees. CMAs make money from financial planning services and fees they receive through retirement and investment accounts.
FDIC-Insured
CMAs typically sweep any invested fund in your account to one of the traditional banks that partners with the brokerage holding your CMA. Once your funds are in a partnering bank account, they are eligible for Federal Deposit Insurance Corporation (FDIC) insurance.
The brokerage firm holding your CMA will provide details of their partner banks, although that may change occasionally.
Offer Advanced Financial Tools
CMAs offer many features similar to traditional banking services. You can deposit and withdraw money from your account through debit cards, checks, electronic transfers, and direct deposits.
Like a checking account in a bank, you can pay bills, make purchases, and withdraw money from an ATM. Like a savings account, you can earn interest on funds you keep in your savings account, often at a higher-than-average rate.
With CMAs, you can quickly transfer cash into the brokerage firm's investment accounts. Some investment options include investing in brokerage accounts, cryptocurrency, and certificates of deposit.
Offers Secure Cash Management
FINRA, the Financial Industry Regulatory Authority, is an organization that works with the Securities and Exchange Commission and monitors the activities of U.S. brokers.
FINRA ensures that brokers comply with regulations and offer complete transparency to the cash management account holders regarding their risks, FDIC coverage, and account structures.
Considerations
Like other banking accounts, you should compare your cash management account options to choose the right one. Here are some factors to consider:
- Fees: Although many CMAs do not charge fees, ensure you read the fine print to verify any fee details before committing to a brokerage firm's CMA. Also, check the fees on the linked brokerage account.
- Services: Find out the details of services offered by your chosen CMA. Check if the CMA offers free ATM services or check-writing if that is relevant to you.
- APY: Most CMAs offer high-yield interest that can earn you more money over time.
- Minimum Balance Requirements: Check if the CMA has minimum balance requirements.
- FDIC Coverage: Check the level of FDIC coverage offered by the CMA.
- Investment Service: Make sure your CMA partners with a brokerage firm you prefer before depositing your funds.
- Customer Service: Consider the services available if you need to contact customer service.
Takeaway
CMAs are a great way to combine banking with your investment needs. If you want to open a cash management account, consider CMAs offered by different providers to see how they balance your banking needs and financial planning goals.