What Is a Cash Management Account?
Chances are that you’ve encountered cash management account (CMA) offers from your online broker or robo-advisor, and they might seem like the perfect solution for all your cash needs. Before you open an account and put all your money into it, you should take the time to understand what they are and how such accounts can benefit you and your finances.
A cash management account has similarities to bank checking and savings accounts, as well as high-yield cash accounts, but varies among providers in fees, investment minimums, products, and services. Most CMAs deliver a one-stop financial portal with checking and higher-yield savings options, along with easy transfers between brokerage and cash accounts. Some financial firms enable cash sweep or automatic transfers of the cash in your brokerage account into the CMA.
You’ll typically have access to a debit card with ATM access. Cash management accounts are safe and might be protected by FDIC insurance or SIPC insurance that covers your investments and cash. Find out the pros and cons of a cash management account and whether this type of financial account is right for you.
Key Takeaways
- Cash management accounts are a feature-rich alternative to bank checking and savings accounts.
- Cash management accounts can consolidate all of your financial accounts, including investing, saving, and checking, under one brokerage platform.
- Cash management accounts typically provide higher yields and greater cash flow than ordinary savings accounts.
- Your choice between a CMA and a bank savings and checking account will depend on fees, minimums, and personal financial needs.
- CMA interest rates vary with market rates and can rise or fall.
Pros and Cons of Cash Management Accounts
Pros
For those who prefer to streamline their accounts, CMAs are a convenient strategy for consolidating all banking and investing under one roof
Most CMAs offer higher interest rates than typical bank savings accounts, which leads to greater cash flow
CMAs earn interest and provide a passive income stream that can be reinvested in the financial markets or used for short and intermediate term cash needs
Your funds are insured by the FDIC or SPIC. This ensures that your cash is safe, up to the legal insurance limits
Some CMAs provide debit ATM cards and bill pay.
Cons
All interest income is taxed on your 1040 income tax return
You might receive higher rates from CDs, money market mutual funds, or high-yield savings accounts at other financial institutions
CMAs may have limits on withdrawals and/or high monthly management fees and minimums
How a Cash Management Account Works
A cash management account is distinct from a bank account. Although not required, you may open a CMA at the same institution where you have an investment account, whether that is at a brokerage like Fidelity or a robo-advisor such as Wealthfront or Betterment. This makes transfers between investment and cash accounts easier.
These accounts come in two varieties:
- Bank or money market sweep account: The cash from your investment account is automatically transferred or "swept" into the CMA and invested in a bank account or money market mutual fund.
- Stand-alone CMA: The account is funded with your contributions and not automatically swept from an investment account. There may also be a choice of the type of cash account available (such as individual or joint).
How to Open a Cash Management Account
Opening a cash management account online varies by financial institution. Some are more streamlined than others, but the majority of the brokerage platforms that offer this service make the account pretty easy to open.
The typical steps to open a cash management account include:
- Choose the type of account: individual, joint, trust, or other.
- Input personal information such as Social Security number, date of birth, address, phone number, and employment details.
If you open a cash management account at a traditional investment broker, then you can access live customer service for guidance. Robo-advisor CMA accounts might not offer this service.
Once the account is open, you’ll receive your account number, debit card, and links to account details. You may be able to choose the type of cash account, such as a government cash management account, which invests in government securities, or a standard account. In order to receive high interest rates, your cash might be invested in several partner banks, which also provide FDIC insurance for your funds. In other cases, your funds will be protected by SIPC insurance.
What to Look for in a Cash Management Account
Look for a cash management account with high interest rates, especially if you expect to keep more than a few thousand dollars in the account. If you are using the CMA to consolidate all of your cash accounts, then make sure that the account offers:
- High interest rates
- Checking
- Bill pay
- Direct deposit
- Automatic fund transfers
- Overdraft protection
- Fee-free ATM access
- Easy transfers between investment and CMA accounts
- Mobile check deposit
While not as common, some CMAs have special features such as free wire transfers and ATM reimbursem*nts. However, beware of high fees and minimum deposit requirements. If the CMA is in addition to your bank savings and checking accounts, then consider what features are most important to you.
FDIC and SIPC Rules and Limits
If you’re worried about whether cash management accounts are safe, these legal protections should calm your fears. A CMA account might offer either Federal Deposit Insurance Corporation (FDIC) or Securities Investor Protection Corporation (SIPC) insurance, or both. The Federal Deposit Insurance Corporation is a U.S. government agency that protects your deposits against bank failure. The bank provides each account with up to $250,000 of coverage. The FDIC insures only banks, not credit unions, which are insured by the National Credit Union Administration.
The Securities Investor Protection Corporation protects the funds in your brokerage firm from failure. The securities in your account are protected up to $500,000. The $500,000 protection includes insurance for the cash in your account.
The FDIC insurance will protect your cash, up to $250,000, should the bank fail, while the SIPC insurance protects the value of your investments and cash up to $500,000, which includes $250,000 coverage against loss for cash. Many accounts offer additional insurance protections through other insurance providers for higher amounts as well. There is no insurance that protects securities such as stocks, bonds, and funds from declines in investment values.
Cash Management Accounts vs. Other Accounts
Whether to open a cash management, checking, savings, and/or money market account depends upon your particular needs. The interest earned on savings, checking, and CMA accounts is taxable.
- Checking accounts: These accounts are available from banks, credit unions, investment brokerage firms, and some robo-advisors. You can make deposits and withdrawals online, in a branch, through check writing and deposits, auto bill pay, and ATMs. Normally, checking accounts offer ultra-low or no interest payments and might charge a monthly fee.
- Savings accounts: Available from banks or credit unions, savings accounts are used for short- to intermediate-term cash needs and typically pay an interest rate that is lower than CDs or money market mutual funds. Some financial institutions also offer high-yield savings accounts.
- Money market accounts (MMAs): A money market account is an interest-bearing account at a bank or credit union that typically pays a higher interest rate than a savings account. A money market account can combine the benefits of a checking and savings account by offering limited check writing and an ATM debit card. An MMA might limit the number of transactions, require a minimum balance, and/or charge fees. An MMA shouldn’t be confused with a money market mutual fund, which is a short-term investment fund that holds short-term debt and pays a higher interest rate.
Is a Cash Management Account Right for You?
Opening a cash management account can be in addition to or in lieu of a bank savings and checking account. Whether the cash management account is right for you is a personal choice and depends upon your banking needs. Before choosing the best cash management account for you, consider your needs. Do you need bill pay, many monthly checking transactions, and a neighborhood branch to visit? If so, the CMA might not fit your needs.
If you want to consolidate all of your financial accounts with one provider, then a cash management account might be the perfect solution. For those who worry whether a cash management account is safe, the answer is yes. The access to extended hours of customer service at most major investment firms is another reason to consider a CMA.
Compare the Best Cash Management Accounts
| Company | Account Minimum | APY | Fees |
|---|---|---|---|
| Fidelity | $0 | 2.72% FDIC insured 4.97% for Fidelity Govt. Money Market Fund | $0 |
| Interactive Brokers | $0 | 4.83% for IBKR Pro accounts. 3.83% for IBKR Lite Accounts | $0 commissions for equities/ETFs available on IBKR’s TWS Lite, or low costs scaled by volume for active traders who want access to advanced functionality such as order routing; $0.65 per contract for options on TWS Lite and TWS Pro users, with scaled rates based on volume; $0.85 per contract for futures |
| Wealthfront | $500 | 5.00% (5.50% when you refer a friend) | 0.25% for most accounts; no trading commission or fees for withdrawals, minimums, or transfers |
The Bottom Line
Cash management accounts vary by provider and offer a range of interest rates, fee structures, products, and services. The best cash management accounts fulfill your short and intermediate-term cash needs, integrate with an investment account, and deliver the high yields and features that you need. The biggest CMA drawbacks can be high annual fees and low relative interest rates. If you value convenience and have an investment brokerage account, then choosing a cash management account with low or no fees and high interest rates might simplify your financial life.
Frequently Asked Questions (FAQs)
Why Is Cash Management Important?
Most of us need access to cash to pay bills, cover emergency car repairs, and fund our summer vacations. An emergency cash account is also important should your income suddenly decline. Maintaining three to six months of living expenses in a cash account can protect you from having to sell stocks or bonds during a market decline. Opening a high-interest-rate cash account or investing in a short-term CD or money market mutual fund can maximize the returns from your cash. This type of cash management can ultimately deliver cash flow and enable your investments to grow and compound.
Are Cash Management Accounts Safe?
Cash management accounts are safe and insured by the Securities Investor Protection Corporation (SIPC) and/or the Federal Deposit Insurance Corporation (FDIC). The cash in an FDIC-insured bank is protected from loss for up to $250,000 per account. Insurance from the SIPC protects the value of your investments and cash up to $500,000. This includes $250,000 coverage against loss for cash. Many financial institutions also offer additional insurance by funneling cash into various partner banks.
Are Cash Management Accounts Taxable?
Yes. Most interest income is taxed as ordinary income. This means if you earn $100 in interest income and are in the 24% federal tax bracket, then you will owe the federal government $24 in tax. This does not include your state or municipal tax liability.
Can You Invest With a Cash Management Account?
You cannot typically invest or buy and sell securities within the CMA. However, easy transfers are available between CMA and investment accounts. The primary purpose of a cash management account is to provide banking-type services and liquidity, while investment accounts are typically used to buy and sell securities.
Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in oureditorial policy.
Merrill. "Cash Management Account."
Corporate Finance Institute. "Federal Deposit Insurance Corporation (FDIC)."
Fidelity. "Interest Income and Taxes."
Fidelity. "An Alternative to Traditional Banking That Can Pay You More."
Merrill. "Cash Management Account (CMA)."
Compare Accounts
×
The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.
Provider
Name
Description
