Introduction

Checking and savings accounts aren’t your only options when you want to manage your money efficiently. Cash management accounts (CMAs) offer some of the best features of checking and savings accounts combined, although you won’t find a CMA at your local bank. In this article, we’ll explore how CMAs work, their pros and cons, and how to choose the best one for your needs.

How Do Cash Management Accounts Work?

CMAs are held at non-bank institutions like investment or brokerage firms. They typically earn higher interest rates than regular savings accounts and offer features such as check-writing, debit cards, and online bill pay. Your money in a CMA is swept into one or more accounts at a partnering bank, earning interest and generally being insured by the Federal Deposit Insurance Corp. (FDIC).

Because there’s no single bank or branch attached to your CMA, most of your account management happens online. Account features can vary, so be prepared to do some shopping before opening a CMA.

Pros and Cons of Cash Management Accounts

Pros

• Higher limits on FDIC coverage: By sweeping your money into multiple accounts at multiple banks, your CMA may allow you to keep more than $250,000 per account holder without exceeding FDIC limits.
• Competitive interest rates: CMAs generally offer higher interest rates than regular savings accounts.
• Fewer fees: Some CMAs don’t charge account maintenance fees, ATM surcharge fees, or other transaction fees.
• One account to do it all: You can earn interest, pay your bills, and invest all in one place.
• Earn interest on your checking account balance: Many bank checking accounts don’t earn interest, but CMAs do.

Cons

• Lack of personalized service: Most CMAs are managed online, so you may not get much face-to-face interaction.
• FDIC insurance gaps: Your money may not be covered by FDIC insurance while it sits at your investment firm.
• Varying features: Differences between brokerages and accounts mean you need to shop actively for the features you want.
• No separation for savings: Money kept in a separate savings account may be less likely to be spent accidentally.
• Requirements and fees: Some CMAs have minimum balance or initial deposit requirements and may charge various fees.
• Better interest rates can be had: APYs on CMAs may not be the highest available, so shop and compare rates.

Cash Management Accounts vs. Checking

Simply put, some cash management accounts function very much like checking accounts—and some don’t. Here are a few things to consider:

Checking Accounts vs. Cash Management Accounts

Banks vs. Brokerage Firms

Banks serve your transaction and savings needs, offering loans and credit cards with incentives for customers who have other accounts. Brokerage firms, on the other hand, may suit investors and digital natives, streamlining your finances by combining checking and savings into a single account.

How to Choose a Cash Management Account

Interested in learning more? Here’s how to better understand your options when it comes to CMAs and find an account that may be right for you:

• Find a financial institution: Start with your current brokerage or investment advisory firm, but also search online for alternatives.
• Compare APYs: Look at multiple options, including high-yield savings accounts, money market accounts, and CDs.
• Shop for features: Think about how you want to use your CMA and shop proactively for the features you need.
• Check FDIC insurance coverage: Ensure your entire account balance will be covered under FDIC insurance.
• Consider convenience: Evaluate how easy it is to access information and get help, both online and by phone.

The Bottom Line

A CMA is a bank account alternative that may replace your traditional checking and savings accounts while earning you competitive interest on your entire balance and offering a higher limit on FDIC insurance coverage. If you’d like to streamline your finances, a CMA might help you simplify, especially if you are an active investor or a retiree who receives regular distributions from a retirement investment account.

Finding a CMA online is easy, but investigate multiple options to find the one that’s right for you. Ultimately, however, you may also decide that conventional checking and savings accounts—and the banking relationship that goes with them—are a better fit for you.

Contact Us

If you’re looking for expert advice on mortgages and financial services, look no further than O1ne Mortgage. Our team is here to help you navigate your options and find the best solutions for your needs. Call us today at 213-732-3074 for any mortgage service needs. We look forward to working with you!