Cash management accounts

What is a cash management account?

A cash management account (CMA) is similar to a traditional bank account in that it gives you ways to spend and save your money. But CMAs aren’t bank accounts. Rather, they are accounts linked to brokerages that provide investment options and wealth management services.

Several cash management accounts are offered by brick-and-mortar brokerages with offices across the country. But others are provided by robo-advisors that exclusively exist online. The CMAs linked to traditional brokerages often support check-writing capabilities, while the CMAs attached to robo-advisors have higher interest rates.

Most cash management accounts come with debit cards you can use to access funds at ATMs, though this isn’t always the case. And while the majority of CMAs work with Apple Pay, Google Pay and other digital wallets, they don’t support payments via Zelle.

Why use a cash management account?

A cash management account can make managing your money more convenient if you’re an active investor who wants to keep your money with one institution rather than having it spread out among several banks. In many cases, a cash management account can replace your checking and savings account, but it usually only makes sense to open a CMA if you have an investment account with a brokerage or robo-advisor.

If you’re simply looking for checking and savings features and aren’t interested in investing, a cash management account probably isn’t right for you because pure banking accounts offer more features and better interest rates.

How to compare cash management accounts

Consider the following features when choosing a cash management account.

• Fees. Most cash management accounts don’t require a monthly, quarterly or annual fee to keep the account open, but a few traditional brokerages, including Merrill and UBS, charge up to $200 per year to maintain their CMAs. Generally, you won’t ever have to pay an overdraft fee with a CMA because these accounts decline transactions that exceed your balance.
• Interest. Most CMAs linked to traditional brokerages, including Fidelity and Prudential, earn a negligible interest rate below 0.02% APY. But CMAs offered by robo-advisors, such as Robinhood and M1 Finance, often earn interest rates up to 1.00% APY because the companies behind them have lower operating costs.
• Minimum opening deposits. Most CMA don’t require a minimum opening deposit but a few of them do.
• Investing options. Nearly all CMAs are tied to online or offline brokerages that offer investing capabilities. Some of these accounts require you to be a brokerage customer, but others, including Etrade and Wealthfront, don’t.
• FDIC insurance. All cash management accounts are federally insured for at least $250,000, but most of them offer at least $750,000 in insurance or more. Some even offer protection for balances up to $2.5 million.
• ATM networks. Most cash management accounts have large, nationwide ATM networks or they offer ATM reimbursements. Some, including Betterment and Morgan Stanley, even offer unlimited, global ATM fee reimbursements, which might matter to you if you travel frequently.

Are cash management accounts safe?

Yes. Any uninvested funds kept in a cash management account are safe if they’re backed by the FDIC. However, some brokerages only offer the minimum level of FDIC protection, which is $250,000, while others offer up to $2.5 million in insurance. Certain brokerages are able to offer a greater level of FDIC insurance because they partner with multiple banks, which each insure accounts for $250,000. If you plan on keeping more than $250,000 in your CMA, make sure it’s protected beyond the federal minimum.

What are the benefits of a cash management account?

Cash management accounts have a handful of attractive features and advantages over traditional bank accounts.

• Few fees. In most cases, there’s no monthly fee or minimum initial deposit required.
• Combined checking and savings. Most CMAs offer checking and savings capabilities, which can be more convenient than managing two separate accounts.
• Decent APYs. Cash management accounts offer by robo-advisors tend to offer higher interest rates than brick-and-mortar banks.
• FDIC insurance. Many cash management accounts are FDIC-insured for at least $750,000, while most bank accounts are only protected up to $250,000.
• ATM access. Most cash management accounts either let you withdraw cash for free from a nationwide ATM network or reimburse you for any ATM fees you pay.

What should I look out for?

There are also a few drawbacks to consider before opening a cash management account.

• Advisor required. Several CMAs offered by traditional brokerages require you to work with an investment advisor to open an account rather than allowing you to do it yourself online. Personal Capital is one of the CMA providers that don’t require you to work with an advisor.
• No rewards. Most cash management accounts don’t offer any kind of rewards or cash-back programs.
• Savings accounts offer higher APYs. Several online-only savings accounts offer higher APYs compared to CMAs.
• Can’t deposit cash. Most cash management accounts don’t accept cash deposits, but Merrill lets you add money directly to your CMA from any Bank of America ATM.

How do I open a cash management account?

The specific steps to open a cash management account vary based on the provider. Some require you to work with an advisor in your area, while other accounts let you do everything online yourself. In many cases, you’ll be required to open an investment account with the provider before you can open a CMA. For robo-advisors, opening an account usually involves the following steps:

1. Visit the provider’s website and select Sign up, Apply now or Get started.
2. Enter your name and phone number.
3. Verify the code sent to your smartphone.
4. Enter your email address and create a password.
5. Link an external bank account and make a deposit.
6. Provide a mailing address to receive your debit card.