Cash management accounts are like a two-for-one special for your extra cash: They combine some of the best features of savings accounts and checking accounts. While lesser known, these bank account alternatives can pay higher rates while also letting you easily access your money.
Some traditional brokerage firms offer cash management accounts; however, their cash accounts typically pay far less interest than newer options. Betterment, Wealthfront, Aspiration and SoFi are among the newer crop of fintech firms offering cash management accounts that pay 20 times or more than the national average of 0.1 percent APY on savings accounts.
So, if you’re on the hunt for an account that lets you spend and save for your short-term goals, consider cash management accounts. Just be sure to understand the trade-offs.
What is a cash management account?
A cash management account is an alternative to a checking or savings account. These accounts can pay competitive rates while also letting you make as many withdrawals or transfers as you wish, providing for greater convenience. The latter trait distinguishes them from savings accounts and money market accounts, which limit such transactions to six per statement cycle. Cash management accounts can come with checks, debit cards, ATM access, and online bill pay. Some cash management accounts, like the one offered by Fidelity, also allow you to move money into other investment accounts, such as a retirement account.
Each cash management account is different, but they typically sweep your cash into one or more accounts at program banks where your money is eligible for FDIC insurance. Your account provider will disclose who its bank partner or bank partners are, and they can change. If the firm deposits your money across multiple banks, you can have more insurance coverage than the standard $250,000 offered per bank and credit union. Wealthfront, for example, provides FDIC insurance up to $1 million.
Here are some of the pros and cons of putting money into cash management accounts.
Pros and cons of cash management accounts
- Competitive interest rates
- May offer a highly rated mobile app
- Easy access to your money
- Can find higher interest rates elsewhere
- Typically no branch access
- May not have all the features needed to replace your checking account
Consider these reasons you might open a cash management account.
One of the biggest draws is better returns. Cash management accounts can be a good way to earn a higher rate on your extra cash — something most Americans currently aren’t doing. Only 14 percent of Americans report having savings accounts paying more than 2 percent APY, according to a recent Bankrate survey. But the best online savings accounts and cash management accounts pay 2 percent APY or higher.
For example, Betterment offers up to 2.44 percent APY on its Everyday Savings account. Wealthfront pays 2.32 percent APY on its cash account.
Easy access to your money
Unlike a savings or money market account, a cash management account doesn’t restrict the number of times you can move money in and out of the account. After all, they’re also designed to let you spend. So, cash management accounts can offer a debit card and checks. They can also offer online bill pay and mobile deposit capture. Some accounts, such as Betterment Everyday Savings, will require you to connect a bank account in order to move money in and out.
Great digital experience
You can sign up for an account in minutes online as long as the company can prove you are who you say you are. Expect your app to be one of the best in finance, too. The competition for your cash is fierce, and online-only firms are competing to make the digital experience easy and useful.
Some cash management accounts will provide financial planning tools, too. Wealthfront, for example, gives customers free access to its robo-planning software. SoFi gives customers free access to perks like career coaching and financial planning.
The cons of a cash management account
Consider these reasons you might pass on a cash management account.
Higher yields elsewhere
Make sure to consider money market accounts and savings accounts from banks and credit unions when you shop around for a place to park your extra cash. You can find higher yields on traditional bank products. For example, Vio Bank currently offers 2.52 percent APY on its savings account and requires a minimum deposit of only $100.
For longer-term goals, consider opening a certificate of deposit, or CD.
No in-person support
While you will have access to free ATMs or will get reimbursed for ATM fees, don’t expect to have access to a branch with a cash management account that pays a competitive rate. The best rates are usually offered by digital-only companies.
Won’t have everything you need
If you’re trying to replace your checking account, a cash management account may leave you wanting more. Not all of these accounts offer a debit card or checks. Not all of them offer mobile deposit capture or the ability to use a payments app like Venmo either.
Other important factors to consider
Savers seeking the highest yields should consider cash management accounts. Keep these factors top of mind as you search for the best option.
FDIC insurance: Pay attention to how your money is protected. Read the firm’s disclosures to find out what bank or banks the company is sweeping your money into. Make sure you don’t exceed putting more than $250,000 at any one bank; FDIC insurance wouldn’t cover you for more than the $250,000 maximum if the institution went belly up.
When using a cash management account, also pay attention to one more risk. Your funds aren’t insured until the money is parked at its program banks – a process that could take a couple of days. Potentially, the Securities Investor Protection Corp. could insure your money at the brokerage firm, but not necessarily. Read the fine print to understand the insurance details.
APY: Pay attention to the yield you’ll earn on your money. Some cash management accounts offer competitive rates; others offer you peanuts. These days, you should expect to earn at least 2 percent APY.
Fees: It’s easy to find no-fee accounts with low minimums. Make sure you’re parking money in an account that won’t charge you. You want to earn as much interest as you can, not diminish your return via pesky fees.
Mobile app: Some firms offer better apps than others. Read the brand’s app reviews in the App Store and Google Play to get a sense of the app’s reputation and how the company responds to complaints.
Features: Focus on the features you need and want. Not all cash management accounts offer debit cards or let you use mobile payment options like Venmo or Zelle with the account. If those features matter to you, make sure you are signing up for an account that offers them.