What Is a Cash Management Account?

What Is a Cash Management Account (CMA)? It combines features of a checking account (for quick access to funds), a savings account (interest-earning potential) and, in some cases, an investment account (a simple transition to investment platforms). CMAs are typically available through fintech companies, brokerage firms and some traditional banks.

Why Are CMAs So Popular?

Because CMAs simplify financial management, they are quickly becoming the competitive edge. Rather than managing multiple accounts, CMAs allow users to perform daily transactions, save, and maintain liquidity.

Characteristics of Cash Management Accounts

  • Highly Liquid: You can easily access funds in a CMA using debit cards, checks, or electronic transfers.
  • Interest: Many CMAs offer interest rates competitive with or even higher than those of traditional savings accounts.
  • Integrated Investments: Users can frequently instantaneously move funds into investment accounts, allowing for cash to quickly be deployed into markets.
  • Low or No Fees: Many CMAs have done away with traditional banking fees, such as maintenance or overdraft fees, making them economical.
  • FDIC Insurance: Most CMAs will come through some sort of partner banks with FDIC insurance, so deposit protection can be assured.

How Cash Management Accounts Work

Cash management accounts work as a hybrid financial product. Here’s how they operate:

  • Pooling the Funds: A money market CMA will usually pool all the money that you deposit and the financial institution invests them in low risk, very liquid instruments like a money market fund or government securities.
  • Investment Returns: The institution earn returns on these investments, which are partially paid to account holders in the form of interest.
  • Accessing the Funds: Users can access their funds via debit cards, checks, ACH transfers, and ATM withdrawals.
  • Investment Integration: Some, for example, CMAs are directly tied to brokerage accounts, making it easy to withdraw to buy a stock, ETF or other investment product.

Cash Management Account Types

There is no one-size-fits-all for CMAs. They are also available in different variations to serve users with additional needs:

Brokerage CMAs

These are cash management accounts, offered by investment firms, that merge the two: cash management with investment portfolios. CMA allows users to hold uninvested cash in the account itself and transfer funds seamlessly to their investment accounts.

Best For: Investors who trade regularly and need funds easily accessible for trading.

Fintech CMAs

Companies that originated in the digital realm, such as Robinhood, Wealthfront and SoFi, provide CMAs with fresh and innovative features, including things like higher interest rates, no fees, and enhanced budgeting tools.

Best For: Anyone wanting convenience and yield with a bit of tech-ninja mixed in.

Bank-Backed CMAs

Conventional banks also offer CMAs as well, incorporating their trusted services with earning interest and overdraft protection.

Best For: Customers who value the reliability and customer service of established banks.

How Cash Management Accounts Work

  1. The CMAs do away with the need to manage multiple accounts, thereby streamlining the financial management process.
  2. Higher Returns: CMA often gives better interest as compared to traditional savings bank accounts.
  3. Flexibility: Users can track their day-to-day spending, save for long-term goals, and invest — all from one account.
  4. Low Fees: Most CMAs have no maintenance, overdraft, or ATM withdrawal fees.
  5. Peace of Mind: Your funds are protected up to standard limits with FDIC insurance (through partner banks).

Cons of Cash Management Accounts

  • Interest Rates Can Vary: Depending on the market conditions or the policies of the provider.
  • Limited Physical Access: Particularly for fintech CMAs, they do not have branches where you can walk in and get support in person.
  • Insurance Limits: CMA funds are usually insured through partner banks, with FDIC coverage applied per depositor, per institution.
  • Limited Availability: CMAs may not provide all the features you would expect with traditional checking or savings accounts.

Looking At CMAs Alongside Other Financial Products

Feature Cash Management Account Checking Account Savings Account Money Market Account
Interest Rates High Low High Moderate
Access to Funds Instant Instant Restricted Moderate
Integration with Investments Yes No No No
FDIC Coverage Often Yes (through partner banks) Yes Yes Yes
Fees Low or None Low to Moderate Low Moderate

How to Select the Best Cash Management Account

When choosing a CMA, it is important to consider your financial needs and preferences. Take into account the following:

  • Interest Rates: Use accounts with high interest rates to maximize your earnings.
  • Fee Structure: Look out for any hidden fees or charges, such as ATM fees or international transaction fees.
  • FDIC Insurance: Make sure any of your funds are insured with FDIC or SIPC coverage.
  • Integration with Investments: If you’re an investor, seek CMAs that support easy transfers to brokerage accounts.
  • Accessibility: Check if the account has extra features like mobile banking, debit cards and check-writing.

You Are On The FAQ page

How safe are cash management accounts?

Yes, most CMAs provide FDIC insurance through partner banks, protecting deposits up to $250,000 per institution. Confirm the insurance information with your provider.

What sets CMAs apart from traditional checking accounts?

Although both provide proximity to funds, a CMA typically pays higher interest rates, integrates with investment accounts more seamlessly and has lower fees than checking accounts.

Is a CMA Worksheet itself a bill payment?

Yes, many CMAs facilitate bill payments via ACH transfers, checks, or debit cards, which makes them a sensible option for handling regular expenses.

Are cash management accounts a good place for long-term savings?

CMAs are well-suited to short-to-medium-term savings with liquidity and competitive interest rates. But for longer-term goals, look for accounts that have higher yields or investment products.

What if my CMA provider goes out of business?

CMA funds are typically held at partner banks or insured institutions. In that scenario, FDIC insurance would protect your deposits, up to standard limits.

Can businesses use CMAs?

Yes, a number of financial institutions offer CMAs designed specifically for businesses and include features such as payroll management, expense tracking, and higher transaction limits.

Wrapping Up: The Importance Of Cash Management Accounts

Cash management accounts are a new way to manage personal finance. With a CMA, the benefits of checking with savings and investment accounts are combined giving this hybrid cash-management account unbeatable convenience, flexibility, and growth potential. Whether you need a spot for your emergency fund, help with daily expenses, or that opportunity to get things together before investing, CMAs can help. Use this as an opportunity to shop a bit, and go with what fits your lifestyle and financial aspirations.