March 18, 2024

Cash Management Accounts: The Gateway to Financial Freedom

Keeping tabs on your balances in your savings and checking can be quite a challenge, especially if they’re spread across multiple banks. If you’re looking for a more holistic approach to overseeing and growing your money, you might consider a cash management account.

These accounts offer a unique approach to managing your finances by merging the best features from checking, savings, and investment accounts into one consolidated account. They’re becoming the go-to choice for many financially savvy individuals and pack a lot of perks to maximize savings.

Here’s everything you need to know about cash management accounts, including how they work and what benefits they offer. This article can help you decide if this is the right solution for your money.

What’s a cash management account?

A cash management account (CMA) is a type of money management account that combines the features of several banking products, like checking, savings, and investment accounts. Typically, you can get these through one of three financial services:

- Brokerages: Firms that offer investment services and manage the buying and selling of securities, like stocks and bonds.

- Investment-advisory firms: Firms that provide professional advice and services for managing investments and financial portfolios.

- Robo-advisors: Automated platforms that use algorithms to provide financial advice and manage investment portfolios for users.

A CMA account functions like a checking or savings account, meaning you can write checks, use a debit card, and earn some interest on your balance. What’s more is these accounts often come with better annual interest rates — also known as annual percentage yield (APY) — than regular savings accounts. This means you could grow your money faster than a savings account while still being able to access it whenever you need it.

For those who are investment-savvy, CMAs offer the option to invest in a variety of specialized products, like money market accounts (combining interest savings with checking features) and certificates of deposit (deposit accounts with fixed interest rates and terms during which you can’t remove funds for better savings results). Other CMAs even offer a sweep feature, which is an automatic tool that moves a portion of your cash into higher-yield investments with other banking institutions to help you make the most of your available funds.

Since all these features come in one central account, there's no need to track multiple accounts to manage, invest, or withdraw your money.

How does a cash management account work?

When you open a CMA, you get a hybrid account that bridges the gaps between banking products for a one-stop approach for all your cash management services. Here's how it functions:

- Use your money whenever: Whether you’re paying bills, making purchases with a debit card, or even writing checks, your money is always within reach in your CMA, and with features like direct deposit and mobile check deposit, adding funds to your CMA is a breeze.

- Earn interest: One of the standout features of CMAs is the potential to earn interest on your balance. While the APY can vary, CMAs tend to offer competitive rates, sometimes even outdoing what traditional banks can offer.

- Store and protect large amounts of cash: The brokerage responsible for your CMA will typically invest your money in different bank products with partnering banks that carry government-funded insurance from the Federal Deposit Insurance Corporation (FDIC). This insurance guarantees reimbursement (typically up to $250,000 per account) if the banks ever face financial difficulties and lose your money. By strategically spreading your investments across these different accounts, your brokerage makes sure your funds remain secure, giving you the room to safely deposit large sums of money into your CMA.

Pros of cash management accounts

These accounts offer a variety of advantages that cater to both the everyday user and the seasoned investor. Here are a few of the standout CMA benefits:

- Flexibility: CMAs are all about giving you control. Whether you want to write checks, use a debit card for purchases, or set up different types of investments, CMAs offer a range of features that put you in the driver's seat of your financial planning.

- FDIC protection: Knowing your funds are spread out across different bank products with FDIC insurance helps you keep your money safe — no matter how much you store in your CMA.

- Potentially higher interest rates: Some CMAs offer competitive APYs that may exceed traditional savings accounts. Since every little percent counts when you’re trying to save money, finding a CMA with a higher APY than a typical savings account can make a big impact. A higher interest rate has the potential to grow your money at a faster rate and help you reach your financial goals sooner, whether that’s paying for a vacation or buying a home.

- Easy investment: For those looking to dip their toes into the world of investing, CMAs provide a seamless gateway to a variety of investment products. Brokerage firms and robo advisors like Wealthfront, Fidelity, and Charles Schwab offer a variety of CMAs with different benefits catered to different financial priorities. You can easily transition from saving to investing using products like ETFs and mutual funds.

- Low fees: Nobody likes fees. While banks typically come with low balance or transfer fees, CMAs often remove these. Many CMAs also come with no monthly maintenance fees, and a few even offer ATM fee reimbursements.

Cons of cash management accounts

Each investment firm that provides CMAs may have different features, so no two are the same. It's essential to check the fine print of a cash management account and weigh these cons against the pros to determine if it’s the right fit for you. Here are some cons to be aware of:

- Lack of features: Depending on the provider, a CMA may lack some of the more useful features of a typical CMA, like physical checkbooks or certain types of bill-pay services.

- Only available online: Many CMAs are solely online, meaning you have no physical branch to go to for in-person banking. If you prefer a brick-and-mortar location to make some of your more sensitive transactions, like depositing large sums of money, you’ll want to avoid these types of CMAs.

- Mixed interest rates: While some CMAs boast competitive interest rates, not all of them will exceed or match the interest rates of other specialized accounts, like high-yield savings accounts from traditional banks. A difference in rates can make a big impact on your savings over time, so you likely won’t want a CMA that offers less than what your current savings account offers.

- Not necessary for some people: If you have simpler banking needs and aren’t in the market for more complex investment tools, you may not get much benefit from a CMA. In this case, a traditional checking or savings account might be more up your alley.

Cash management accounts versus other accounts

Let's break down how CMAs stack up against other popular account types:

- Checking accounts: These accounts facilitate daily transactions, like debit card purchases, checks, and online transactions. While they offer easy access to your money, they often come with lower savings interest rates compared with CMAs. Additionally, CMAs often come with the added benefit of investment options.

- Savings accounts: These accounts are where you stash away money for a rainy day. While they typically offer higher interest rates than checking accounts, they might still need to catch up to the APYs that some CMAs offer. Additionally, savings accounts might restrict the monthly transactions you can make, giving you less flexibility with your money.

- Money market accounts: Money markets are a hybrid between checking and savings accounts, offering both competitive interest rates and transactional capabilities. But they often require higher minimum balances compared to CMAs and might come with monthly fees if you don’t maintain those balances.

Earning more, doing more with cash management

Whether you choose to open a CMA or opt for an account that’s more in line with your needs, it’s important to stick with what best helps you manage your money.

If part of that choice comes with the desire to access your pay right away, tools like the EarnIn app can help with that. Instead of dipping into your savings or relying on credit card cash advances that come with high fees, use the EarnIn Cash Out tool to access your pay as you work — not days or weeks later. You can get up to $100/ day and up to $750/ pay period with no credit checks, no interest, and no mandatory fees.

EarnIn can act as a safety net when you need cash quickly for unforeseen emergencies or urgent expenses, and it’s great for timing your day-to-day spending, giving you the flexibility you need to take on life’s financial challenges and reach your money goals. If you’re looking for a powerful, user-friendly financial tool with mobile access, advanced security, and 24/7 support, add the EarnIn app to your toolkit now.

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