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Put savings in a cash management account?

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Dear Dr. Don,
I need to simplify my financial life. I’d like to avoid having so many checking and savings accounts at different banks.

While a cash management account appears to be the best idea, I find this type of account pays practically no interest.

I would appreciate your thoughts on the benefits of a cash management account versus a brokerage account. Or should I simply continue to keep accounts at different financial institutions that pay better interest rates?

Thank you,
— Suzie Savings

Dear Suzie,
It sounds like you’re sick of being “hot money” and managing all these different accounts. Four things to consider about where to hold your savings are: safety, yield, liquidity and convenience.

To me, safety suggests deposits backed by the Federal Deposit Insurance Corp. or National Credit Union Share Insurance Fund. There’s also Securities Investor Protection Corporation protection for brokerage accounts. You should want your savings to be safe. These kinds of deposit insurance generally provide that basic level of protection.

It sounds as if you already know how to find competitive yields on your savings. Are you willing to give up some yield or earnings for convenience? One expert describes a cash management account as an all-in-one vehicle that conveniently combines a checking account with a money market fund, a credit card or debit card and a brokerage account. That’s pretty darn convenient.

If you’re juggling multiple checking and savings accounts to boost interest income, you might have too much of your money in savings. Speak with an investment professional about expanding your investment universe, but in a way that’s consistent with your risk tolerance. I’d suggest paying for a few hours to meet with a fee-only financial professional to review your risk tolerance, life goals, income needs and portfolio.

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