What is a Cash Management Account?

Banking
Updated: 29th Sep 2021
Written by Meagan Drew
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Cash Management Accounts are accounts offered by financial institutions (other than banks and credit unions) that have benefits of investment accounts, savings accounts, and checking accounts all rolled into one.

Cash management accounts typically offer higher than average interest rates because the assets inside the account are invested for the account holder and have the liquidity of a checking account.

How do Cash Management Accounts work?

Money deposited into cash management accounts is parceled into low-risk investments for the account holder to maximize return opportunities.

Unlike regular investment accounts, cash management accounts remain extremely liquid. In fact, most cash management accounts have check-writing capabilities and come with a debit card.

If mobile banking is important to you, cash management accounts typically offer that too.

Who Offers Cash Management Accounts?

You won’t find cash management accounts at your local bank or credit union. Cash management accounts are typically held at brokerage firms online or brick-and-mortar.

Your financial institution probably has a cash management account available as a complementary product if you are already investing.

>> More: Best Online Banks

What are the Benefits of a Cash Management Account?

Cash management accounts usually offer higher than average interest rates because the funds are invested on behalf of the customer in low-risk investments.

The consolidation that cash management accounts offer is a major perk, as well. Because cash management accounts are held at investment firms, they allow customers to see the whole of their financial picture in one place and transfer funds between accounts.

Customers who are looking for a one-stop-shop find cash management accounts a great option because they can handle their banking and investing in one convenient location.

Additionally, account holders can procure loans secured by investments seamlessly. Because cash management accounts are divided and invested into other accounts to maximize returns, occasionally, these accounts come with extended FDIC or NCUA protection because each subaccount carries its own $250,000 insurance per account holder.

Cash Management Accounts Pros and Cons

Pros:

  • Potential for Higher-than-Average Interest Rates
  • Liquidity
  • Consolidation
  • Access to no-fee ATM networks
  • Direct Deposit

Cons:

  • FDIC Insurance verification
  • Fees
  • High minimum balance requirements

Cash Management Accounts vs Checking Accounts

Cash management accounts and checking accounts both offer liquidity through debit cards, check writing, fund transfers, and bill pay.

The chief difference between cash management accounts and checking accounts is that checking accounts are offered at banks or credit unions, and cash management accounts are held at brokerage firms.

Cash management accounts do typically offer interest rates that are higher than checking accounts, so they carry a minimum balance and have higher fees.

Both cash management accounts and checking accounts can be insured by the FDIC or NCUA. However, customers should check with the institution that holds their cash management account to make sure that firm only conducts business with federally insured partners.

>> More: Best Bank Accounts

Alternatives to Cash Management Accounts

Certificate of Deposits

Certificate of Deposit or CDs are financial products that are triggered by time. CDs are sold by banks and credit unions with a fixed term and fixed rate.

CDs are expected to be held until maturity at the financial institution. Once maturity is reached, customers may collect their principal plus interest. The longer the period the CD is held at the financial institution, the greater the interest.

CDs offer can offer comparable interest rates to cash management accounts, but CDs are not liquid.

>> More: Best CD Rates

High-Yield Savings Account

High-yield savings accounts are simply a savings account that offers a higher-than-average interest rate or yield on the account.

Banks and credit unions offer high yield savings accounts and can be accessed through online account services.

High-yield savings accounts do not come with check-writing features or a debit card, but transfers between savings and checking accounts are made easy.

Cash management accounts may have interest rates similar to high-yield savings accounts, but they have checking account like privileges too.

Money Market Accounts

Money market accounts are bank and credit union products that look like savings accounts and act like limited checking accounts.

Money market accounts do offer higher yields on average and allow for some liquidity. Money market accounts are limited to 6 transactions in one month or banking cycle, unlike cash management accounts which have no such restrictions.

Is a Cash Management Account Right For Me?

Cash management accounts can be used as a standalone checking account or in conjunction with a checking account as a part of an overall financial picture.

Cash management accounts are not intended to be long-term investment vehicles since there are other higher-yield vehicles available.

However, they do provide an excellent option for those who would like to get the highest interest rate possible without sacrificing day-to-day liquidity.

Cash management accounts are constructed to be used frequently and are ideal for short or medium-term savings goals.

Anyone who values the ability to see their investments and banking assets without having to visit multiple locations or apps would find a cash management account appealing.

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Meagan Drew
Meagan Drew
Meagan Drew is a personal finance writer with 7 years experience in wealth management. As a former Series 7 and 63 certified advisor, Meagan specializes in making financial topics relatable and consumable, no matter the reader’s experience level. Meagan is a veteran, military spouse, and mom of 4 currently living in Colorado Springs.