Cash management accounts were created in response to consumer frustration with complex banking systems. They simplify your money management, allowing you to do all your banking through one account -- without sacrificing competitive rates or other banking features.
A cash management account may be more convenient than spreading your money across several accounts. Moving money between multiple accounts can take days and result in expensive fees. (If you want to simplify banking, consider opening an account.)
But what are cash management accounts? Read on to find out whether one of these super simple accounts is right for you, plus how to open one.
How cash management accounts work
A cash management account is an all-in-one financial account. It combines checking account perks with the high interest rates of savings accounts.
Deposits and withdrawals
Depositing money into a cash management account is simple. In fact, it's similar to depositing money into an online bank account.
You can withdraw funds several ways. Some cash management accounts include checks, as well as debit cards with ATM fee reimbursements. You may be able to transfer funds electronically or use automatic bill pay.
Checking and savings features
Certain cash management account providers offer linked checking and savings accounts (which you open together). Other providers offer a single account that offers some features of both.
If your cash management account consists of separate but linked accounts, pay attention to which account holds the bulk of your money. The checking account probably won't earn as much interest as the savings account -- put money in savings to earn more.
Brokerage funds
Some brokers offer cash management accounts, which you can often link to a brokerage account. Many of the best cash management accounts are offered by brokers.
FDIC insurance
Cash management accounts are protected by Federal Deposit Insurance Corporation (FDIC) insurance. With a traditional bank account, the FDIC protects your money up to $250,000 per person per bank. But if your cash management account partners with many insured banks, you could end up with FDIC insurance of $1 million or more.
Pros and cons of a cash management account
Here's a quick look at some of the pros and cons of cash management accounts.
Benefits of cash management accounts
- All-in-one: You can manage all of your money in one place.
- Accessible: You have easy access to your funds when you need them.
- ATMs: If your cash management account offers ATM rebates, you can use any ATM you want without paying fees.
- Digital: You can transfer and remotely deposit funds (just as you could with a traditional bank account) through your provider's mobile app.
- Safe: Your money is FDIC insured for at least $250,000 (and possibly much more).
- Better than average interest rates: You'll likely earn a higher interest rate than you'd get with brick-and-mortar banks.
Drawbacks of cash management accounts
- Opportunity cost: You can sometimes find higher interest rates with online high-yield savings accounts.
- Minimum balance requirements: Some cash management accounts may have high minimum balance requirements or charge maintenance fees.
- No branches: You won't have access to a branch network with in-person support.
- Limited features: Not all cash management accounts offer debit cards, check-writing capabilities, mobile payment service integration, or mobile check deposits.
- Mixed savings and checking: Some people prefer to keep their checking and savings accounts separate. Cash management accounts don't give you this option.
What to look for in a cash management account
Here are a few things to consider when choosing a cash management account:
- FDIC insurance: Look into which banks your provider partners with. Additionally, check to see how much FDIC insurance you have.
- APY: Investigate the APY the cash management account offers. Compare it to what you can find with online savings accounts. Ideally, you should look for a cash management account that offers 4% APY or better.
- Fees: Understand what expenses are associated with the account. Start by skimming a copy of your cash management account's fee schedule. Pay particular attention to monthly fees.
- Minimum balance: Some cash management accounts may require a minimum balance to open your account and avoid maintenance fees. Make sure you can meet this requirement. If not, consider a different cash management account.
- Accessibility: Your account should give you multiple ways to deposit and withdraw money from the account. These should match how you typically manage your money. For example, if you write a lot of checks, you'll want a cash management account with check-writing capabilities.
- Mobile tools: Most cash management accounts don't have in-person branches -- you'll have to manage money online. A solid mobile app can make this much easier. Check out customer reviews of the app to see how user-friendly it is and keep an eye out for common complaints.
Is a cash management account right for you?
Reasons to open a cash management account:
- You want to manage all of your money in one place.
- You're comfortable banking online.
- You want to earn a high interest rate on your savings without giving up accessibility.
Consider a money market account, a high-yield savings account, or a checking account if you think something other than a cash management account is the right place for your money.
How to open a cash management account
In order to open a cash management account, you must first choose an account, and then complete an application for that account.
Choosing a cash management account
Some brokers offer cash management accounts. You can also find these accounts with some fintech companies like Aspiration. Shop around to snag great deals.
Applying for a cash management account
You apply for a cash management account the same way you'd apply for a savings account. To open a bank account online, you must choose a bank, gather relevant financial information, apply on the bank's website, and fund the account.
If your account includes a debit card, your cash management account provider will mail this to you once you finish setting up your account. You'll also be able to order checks (if your account features that option).
Cash management accounts have their pros and cons. Check out the best cash management accounts to safely manage your money in one place and earn interest on it.
