What Is a Cash Management Account?

Definition & Examples of Cash Management Accounts

Definition

A cash management account is a cash account offered by a financial institution other than a bank or credit union, usually a brokerage firm. It is designed for managing cash, making payments, and earning interest.

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Definition and Example of a Cash Management Account

A cash management account (CMA) is a cash account that combines features similar to checking, investment, and savings accounts. It's held through financial institutions other than banks and credit unions, such as brokerage firms. The institutions might use partnered banks to store the funds. You can use one or more cash management accounts in place of, or in addition to, a checking account.

CMAs combine both short-term investing and day-to-day banking. They allow you to access your money, pay bills, manage your savings, and earn interest. These accounts are typically separate from a brokerage firm's investment accounts, but the accounts can be linked together.

  • Acronym: CMA

How Does a Cash Management Account Work?

Your money earns money through automatic low-risk investing when you put it in a cash management account while allowing you to access it for your daily spending. Most cash management accounts come with a debit card, a book of checks, and online bill pay services, allowing them to function similarly to traditional checking accounts. They also pay more interest than most savings accounts.

Many cash management accounts offer features similar to those provided in checking accounts, such as:

  • ATM rebates
  • Mobile deposits
  • Banking alerts
  • Cashback on purchases

Do I Need a Cash Management Account?

A cash management account isn't a necessary part of managing your money, but it can help you grow your assets. It performs many of the same functions as other bank accounts. You can store and access money in a checking or money market account. You can earn interest in a high-yield savings or CD account.

Opening a cash management account may not be the best way to manage and grow your money if you don't already work with a brokerage firm. Still, it keeps your cash accessible and flexible while also taking advantage of low-risk growth.

Note

Ask about monthly fees and minimum balance requirements before opening a cash management account. Some brokerage firms require tens of thousands of dollars as a minimum deposit to open a CMA, or they charge high monthly fees for anyone under that minimum. Others will have no monthly fees and no minimums.

If you decide to open a cash management account, look for one that offers:

  • Linked accounts: You'll probably need other accounts, such as an online bank account or a local bank for your CDs or safe deposit box, or to earn a higher annual percentage yield. Look for a CMA that allows you to link accounts to make them easy to access.
  • FDIC insurance: Cash management account providers automatically "sweep" your unused cash into investments that pay dividends or interest. That maximizes the account's profitability.

Note

Make sure that the Federal Deposit Insurance Corporation (FDIC), a government-guaranteed program that protects your money, insures the sweep accounts.

Cash Management Account vs. Checking Account

Cash management accounts are valuable tools for money management, but they're not bank accounts per se. Knowing the differences between a CMA and a traditional checking account can help you understand which choice is better for you.

Cash Management Account Checking Account
Run by a brokerage firm. Run by a bank or credit union.
Funds split between brokerage accounts and accounts at different banks. Funds all held by a single financial institution.
Funds in brokerage accounts may or may not be federally insured. All funds are required to be federally insured.
Offers debit card, checks, ATM use, mobile deposit. Offers debit card, checks, ATM use, mobile deposit.
May have large asset minimums and fees. Usually have low or no asset minimums and fees.
Connected to investment accounts. Separate from investment accounts.
No brick-and-mortar locations. May have brick-and-mortar locations.
Earns low to mid interest rates. Earns low interest rates (except for high-yield checking).
Usually refunds ATM fees. May charge ATM fees out of network (except for online banks).

Pros and Cons of Cash Management Accounts

Cash management accounts offer many benefits, but they also come with some disadvantages. Consider all the pros and cons when you're deciding what kind of accounts are best for your financial needs.

Pros
  • Simplifies banking

  • Automatically maximizes cash management

  • Easy to set up and protect

  • Offers many features associated with traditional banks

Cons
  • Monthly fees

  • Misses out on more profitable investments

  • Potential errors

  • Higher interest elsewhere

  • Uninsured investments

Pros Explained

  • Simplifies banking: A cash management account allows you to use one financial institution for both your saving and investing needs. That means only one login to keep track of, fewer statements and tax forms each year, and fast transfers to and from your investment accounts.
  • Automatically maximizes cash management: Your money is put to work automatically to maximize profitability.
  • Easy to set up and protect: Opening a cash management account is generally a straightforward process that can be done online, especially if you already have an account with that financial firm. The money that's in savings is FDIC-insured.
  • Many features associated with traditional banks: You can get ATM rebates, mobile deposits, a free debit card, checks, and many other features that you'd find at a regular bank.

Cons Explained

  • Monthly fees: Some CMAs have monthly fees or minimum balances that you must meet. There can also be fees for transferring money from your CMA to another bank account or closing your account.
  • Miss out on more profitable investments: Investments associated with cash management accounts are generally low risk, but that also means that they have lower yields. Keeping money in this type of account means not making higher-yielding investments.
  • Potential errors: Your money is moved around between financial institutions and accounts, so it's exposed to potential processing errors.
  • Higher interest elsewhere: A CMA generally earns more interest than a standard checking or savings account, but many high-yield checking accounts or those offered by online banks can earn more interest.
  • Uninsured investments: The investments that CMAs use are usually low risk, but that doesn't mean they're risk-free. Investments such as money market funds are not FDIC-insured, which means you can lose money and be unable to recover it.

Key Takeaways

  • A cash management account is a cash account offered by a financial institution other than a bank or credit union, usually a brokerage firm.
  • You can use a CMA in place of, or in addition to, a regular checking account.
  • Cash management accounts allow you to access your money, pay bills, manage your savings, and earn interest.
  • A CMA may have monthly fees or minimum balances that you must meet.
  • A CMA keeps your cash accessible and flexible while using low-risk investing strategies to help it grow if you already work with a brokerage firm or if you don't have a bank.
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Sources
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Fidelity Investments. "Cash Management From Fidelity."

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