What is a cash management account?

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Imagine combining the best features of your checking, savings, and investment accounts into one — that's essentially what a cash management account (CMA) does. 

These accounts offer a blend of high interest rates, flexibility, and investment opportunities and are best for those who want to keep their cash insured but accessible.

What is a cash management account?

Cash management accounts are financial products typically offered by brokers, investment advisory firms, and even robo-advisors. Like checking or savings accounts, CMAs allow you to deposit, access, and manage your cash. However, CMAs often provide: 

• Higher interest rates than traditional bank accounts
• Debit cards, check-writing, or ATM access
• Integration with investment platforms

The best cash management accounts offer interest rates around 5% — over 10 times higher than the average savings account interest rate. 

Many CMAs charge no monthly maintenance fees and have no minimum balance requirements, but some require initial deposits ranging from $100 to $1,000 or more. Some may charge fees for services like wire transfers and overdrafts, so always read the fine print before opening an account.

How cash management accounts work 

Investment or robo-advisory firms offer CMAs, not traditional banks. Despite this, CMAs provide features similar to traditional checking and savings accounts, with some additional benefits.

While you manage your CMA through the investment firm, partner banks actually hold your money. This arrangement ensures FDIC insurance for your funds, typically covering up to $250,000 per bank. Some CMAs distribute larger deposits across multiple banks, potentially increasing your FDIC coverage beyond $250,000. 

This structure allows CMAs to offer the familiarity and safety of traditional bank accounts while still offering higher interest rates and added investment options.

Advantages of cash management accounts 

High interest rates are the primary draw of cash management accounts. You can often find accounts yielding 5% or more, far exceeding typical checking and savings accounts. 

"Cash management accounts allow one to hold cash for future investment without the need to give up yield while you wait for the ideal investment opportunity," says Nick Marino, CEO and owner of the financial planning firm Breakaway Wealth Planning.

Aside from increased earnings, a cash management account's biggest advantages are its accessibility and flexibility. Some CMAs also come with check-writing privileges, debit card access, or bill-pay functions, so you can use the funds in your account to cover daily living expenses and needs just as you would with a checking account. 

Many cash management accounts integrate seamlessly with investment platforms, making it easy to manage your cash and investments in one place. 

"This integration supports streamlined cash management and investment strategies, enabling users to maintain liquidity while optimizing their returns,” says Chad Cummings, a tax attorney and certified public accountant.

Limitations of cash management accounts

While CMAs offer numerous benefits, they're not without drawbacks: 

• Limited personal interaction: Most CMAs are offered by online platforms, which means you can't walk into a branch for face-to-face service.
• Yield fluctuations: The high interest rates on CMAs can change frequently, sometimes without notice.
• Possible delays: Transfers between your CMA and external accounts might take a few days to process.
• Less regulatory oversight: Unlike traditional banks, some CMA providers may not be subject to the same level of regulatory scrutiny.

How cash management accounts compare to other types of accounts 

Here's how cash management accounts compare to other common financial accounts.

• Checking account: Cash management accounts offer higher interest than traditional checking accounts and may provide similar liquidity via debit card access and check-writing privileges.
• High-yield savings account: Both CMAs and HYSAs offer higher interest rates, but CMAs typically offer more features like check writing and debit cards, which savings accounts often lack. But, high-yield savings accounts are directly FDIC-insured, while CMA funds are typically swept into partner banks for insurance.
• Money market account: Money market accounts often have a steep minimum balance requirement, while cash management accounts do not. They may also charge monthly fees, while cash management accounts are known for not charging fees.

Should you open a cash management account? 

Cash management accounts are best for those who want to earn more interest without sacrificing easy access to their funds. They're also a good option if you’re tired of juggling multiple accounts and want a one-stop solution for all of your banking and investment needs. 

"CMAs are particularly advantageous for individuals seeking a combination of high liquidity, ease of access, and the ability to earn modest interest on idle cash," says Cummings. "They are less suitable for investors seeking higher returns through more aggressive investment strategies or those who do not need the liquidity CMAs provide."

Best cash management accounts 

The best cash management accounts offer a significantly higher interest rate than traditional checking and savings accounts, easy access to your funds, and minimal fees. Most also offer integration with investment platforms.

How to choose the best cash management account 

To select the best cash management account, compare available options and account features. Factors to consider include:

• Competitive rates: Look for accounts that offer higher interest rates on deposits.
• Low fees: Choose accounts with minimal or no monthly maintenance fees and low transaction fees.
• Investment options: Select accounts that integrate well with robust investment platforms, offering a range of investment choices and tools.
• Convenience features: Consider accounts that provide easy access to funds through debit cards, check-writing, ATM access, and fee reimbursements.

"The offerings vary significantly between brokerage firms, so it’s important to research and consider interest rates and fees carefully," says Janelle McCreary, a certified financial planner and lead advisor at the investment advisory firm Curi RMB Capital. "Additionally, if you have investment assets, holding your cash management account at the same firm as those assets will likely give you added convenience in managing your accounts in one easy place."

The bottom line 

A cash management account offers a compelling alternative to traditional checking and savings accounts. By providing high interest rates, flexible access, and investment integration, CMAs can be a valuable tool for managing your cash. Just be mindful of the online-only nature of most CMAs and occasional transfer delays. 

But before opening this type of account, it's important to understand how cash management accounts work and compare options to find an account that best suits your goals and needs while also providing the most competitive return for your money.