What is a cash management account?

Flamingo Images/Shutterstock

A cash management account combines some aspects of checking and savings accounts with features such as competitive yields and little to no fees. Cash management accounts generally are designed for people with large cash holdings they want to keep safe but easily accessible.

What is a cash management account?

A cash management account is an alternative to a traditional checking or savings account offered by brokerage firms and robo-advisers. They help customers keep large sums of money secure and easy to access, while also paying some interest.

Each cash management account is unique, but you often get easy access to your funds in the form of a debit card and/or checkbook. These accounts typically sweep your cash into one or more accounts at program banks where your money is eligible for Federal Deposit Insurance Corp. (FDIC) insurance. Your account provider will disclose who its bank partners are, and they can change over time.

How cash management accounts work

Cash management accounts keep your money safe and pay interest by dividing your deposit into multiple accounts at different banks. For example, if you deposit $300,000 into a cash management account, the brokerage might put $60,000 in five different bank accounts.

Dividing the cash among the five banks enables the cash management account to offer more than the typical amount of FDIC insurance. In this case, you could receive insurance on up to $1.25 million in deposits, $250,000 from each bank your brokerage uses to store your funds.

When you deposit or withdraw money, your custodian directs funds or removes funds from the different accounts as needed so all your money remains insured.

Pros of cash management accounts

There are several benefits to using a cash management account:

  • FDIC protection. For consumers with large balances, cash management accounts make it easy to keep money safe by offering FDIC insurance on balances of up to $1 million or more, after the funds arrive at a program bank. In the interim, funds may be secured by the Securities Investor Protection Corp. (SIPC).
  • Reasonable interest rates. Most cash management accounts pay higher interest rates than traditional checking and savings accounts at most banks. While you might find higher rates at some banks, cash management accounts offer much of the flexibility of checking accounts, which rarely pay interest.
  • Easy investment. Cash management accounts are frequently provided by brokerage firms and most make it easy to use the money in your cash management account to invest — a nice perk if you frequently buy and sell securities.
  • Flexibility. Cash management accounts usually make it easy to withdraw your funds. Many offer debit cards you can use to withdraw cash at ATMs or make purchases and some may offer check writing.

Cons of cash management accounts

Consider these downsides before opening a cash management account.

  • Lower interest rates. If you have a large cash balance, you want to earn the best possible interest rate to reduce the impact of inflation. Many online savings accounts offer better interest rates than cash management accounts. You may also earn a higher yield on low-risk or risk-free products like CDs and short-term investments like U.S. treasury bills.
  • Lack of features. Most banks offer features like bill pay to checking account customers. Many cash management accounts don’t have these money-management features, so they might not be a suitable replacement for a traditional checking account.
  • Online-only. Some cash management accounts are offered by online-only institutions. If you prefer banking in person, a cash management account might not be right for you.
  • Not necessary for many people. A key feature of a money management account is the ability to insure funds in excess of the FDIC’s typical $250,000 limit. But most consumers don’t have that much cash on hand, making the perk unnecessary.
  • Fees and minimum balances. Some companies that offer cash management accounts charge monthly fees or require high minimum balances.

Cash management accounts vs. other accounts

Here are some basic ways cash management accounts compare to other commonly held accounts.

  • Checking accounts: Some cash management accounts are similar to checking accounts, allowing you to write checks, use a debit card and make ATM withdrawals. Cash management accounts tend to pay higher interest than checking accounts, many of which earn no interest at all.
  • Savings accounts: Savings and cash management accounts can both earn competitive interest rates. But there are some big differences: A savings account generally limits your transactions to six per month, whereas a cash management account may allow for more. Some cash management accounts also allow for check writing, while savings accounts do not.
  • Money market accounts: Cash management and money market accounts both may require high minimum balances. Both types of accounts can be insured by the FDIC, yet a cash management account may be covered up to more than the standard $250,000.

Is a cash management account right for you?

Ask yourself these questions if you’re considering opening a cash management account.

  • Do you do most of your banking online? Cash management accounts often come from online-only institutions, so you’ll need to be comfortable with online banking to use one.
  • Do you use tools like online bill pay or peer-to-peer transfers? Some cash management accounts lack these features, so you’ll want to stick to a traditional checking account for these options.
  • How much cash do you keep on hand? Cash management accounts are best for consumers with large cash balances that exceed FDIC insurance limits. If you keep large amounts of money in your checking and savings accounts, a cash management account might be a good choice.

The best cash management accounts

Here are some details on various cash management accounts:

Account  APY Minimum deposit Monthly fee
SoFi
  • 0.25% (with $500 deposit monthly)
None None
Wealthfront
  • 0.10%
None None
Aspiration
  • 1% on balances up to $10,000 with Aspiration Plus and $1,000 in monthly debit card spend.
  • Otherwise, 0.25% on balances up to $10,000
  • 0.10% on the amount over $10,000
$10 Choose your own, even if it’s $0 ($5.99 per month, billed annually, for Aspiration Plus)
Robinhood
  • 0.30%
None None
Betterment
  • 0.10% for Cash Reserve account
$10 None
Personal Capital Cash
  • 0.05%
None None

Learn more: