Cash management accounts are a special type of bank account that combines some of the aspects of checking and savings accounts. They’re generally designed for people with large amounts of cash they want to keep safe, but easily access.
What is a cash management account?
A cash management account is an alternative to traditional checking or savings accounts. Offered by brokerage firms and robo-advisers, they help customers keep large sums of money safe and easy to access, while also paying some interest.
Each cash management account is unique, but typically, you get easy access to your funds in the form of a debit card and/or checkbook. These accounts typically sweep your cash into one or more accounts at program banks where your money is eligible for FDIC insurance. Your account provider will disclose who its bank partner or bank partners are, and they can change
Where does my money go when I deposit it into a cash management account?
The way cash management accounts keep your money safe and pay interest is by dividing your deposit into multiple accounts at different banks.
For example, if you get a cash management account from your brokerage and deposit $5,000, the brokerage might put $1,000 in five different bank accounts.
This lets the cash management account offer more than the typical amount of FDIC insurance. In this case, you could receive insurance on up to $1.25 million in deposits, $250,000 from each bank your brokerage uses to store your funds. But that FDIC insurance isn’t provided until the funds actually arrive at one of the program banks.
When you deposit or withdraw money, your brokerage directs funds or removes funds from the different accounts as needed to make sure all of your money remains insured.
Benefits of cash management accounts
There are many benefits to using a cash management account:
FDIC protection. For people with large balances, cash management accounts make it easy to keep their money safe by offering more than $250,000 in FDIC insurance. Some offer protection for balances up to $1 million or more but that FDIC insurance isn’t provided until the funds arrive at one of the program banks.
Reasonable interest rates. Most cash management accounts pay higher interest rates than those offered by brick-and-mortar banks. While you might find higher rates at some banks, cash management accounts offer much of the flexibility of checking accounts, which rarely pay interest.
Easy investment. Because cash management accounts are frequently provided by brokerage companies, most make it easy to use the money in your cash management account to invest. If you frequently buy and sell securities, this is a nice perk.
Flexibility. Cash management accounts usually make it easy to withdraw your funds. Many offer debit cards you can use to withdraw cash at ATMs or make purchases and some may offer checkbooks you can use for larger purchases.
Drawbacks of cash management accounts
Before opening a cash management account, consider these downsides.
Higher interest rates. If you have a large cash balance, you want to earn the best possible interest rate to reduce the impact of inflation. Many online savings accounts offer better interest rates than cash management accounts.
Lack of features. Most banks offer features like bill pay to checking account customers. Many cash management accounts don’t have these features that make it easier to manage your money, so they might not be a perfect replacement for a traditional checking account.
Online-only. Some cash management accounts are offered by online-only institutions. If you’re the type of person who likes to do your banking in person, a cash management account might not be the right choice for you.
Not necessary for many people. One of the top reasons to use a cash management account is that they offer FDIC insurance in excess of the typical $250,000 limit. This isn’t an issue for the vast majority of people, which means that perk isn’t worth much in the end.
Fees and minimum balances. Some companies that offer cash management accounts charge monthly fees or have high minimum balances, which you need to keep in mind.
Is a cash management account for you?
If you’re considering opening a cash management account, ask yourself the following questions.
Do you do most of your banking online? Cash management accounts often come from online-only institutions, so you’ll need to be comfortable with online banking to use one.
Do you use tools like online bill pay or peer-to-peer transfers? Some cash management accounts lack these features, so you’ll want to stick to a traditional checking account if you need these options.
How much cash do you keep on hand? Cash management accounts are best for people with large cash balances. If you tend to keep large amounts of money in your checking and savings accounts, a cash management account might be a good choice for you.
The best cash management accounts
These are some details on some of the newest cash management accounts:
Account APY Minimum deposit Monthly fee
0.25% (with $500 deposit monthly or 10 monthly debit card purchases)
1% on balances up to $10,000 with Aspiration Plus and $1,000 in monthly debit card spend.
Otherwise, 0.25% on balances up to $10,000
0.10% on the amount over $10,000
$10 Choose your own, even if it’s $0 ($7 per month or $69 per year for Aspiration Plus)
Best ways to insure excess deposits
5 reasons to have multiple savings accounts
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