Not happy with traditional banking products? A cash management account may be right for you.
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 or banks. Moving money between multiple accounts can take days and result in expensive fees.
But what are cash management accounts? Here's a closer look at how these types of accounts work and how to decide if a cash management account is right for you.
A cash management account is a financial account that combines the accessibility of a checking account with the high interest rates of a savings account or a certificate of deposit (CD).
Depositing money into a cash management account is simple. In fact, it’s similar to depositing money into an online bank account.
When you need to withdraw funds, you have several options. Some cash management accounts include checks as well as debit cards with ATM fee reimbursements. Alternatively, you could transfer the funds electronically to another bank or use automatic bill pay.
Certain cash management account providers offer linked checking and savings accounts (which you open together). Other providers offer a single account that has 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.
Some brokers offer cash management accounts, which you can often link to a brokerage account.
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 with a cash management account, you could end up with FDIC insurance of up to $1 million or more -- if your cash management account spreads your money out over several banks.
Here's a look at some of the pros and cons of cash management accounts.
Some of the key reasons to own a cash management account include:
Keep these points in mind when deciding whether a cash management account is a good fit for you:
Here are a few things to consider when choosing a cash management account:
A cash management account could be a good fit for you if:
Consider a high-yield savings account or a checking account if you don't think a cash management account is the right place for your money.
Some brokers offer cash management accounts. You can also find these types of accounts with some fintech companies like Simple and Aspiration. Compare your options to find the best cash management account for you.
Opening a cash management account is essentially the same process as opening any other type of online bank account. You'll start by filling out an application with your personal information. Then, you'll fund your account. The easiest way to do this is by electronically transferring funds from your existing bank account to your cash management account. Some companies may permit you to send a mailed check as well.
If your account includes a debit card, your cash management account provider will mail this to you once you've finished 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. If you're not satisfied with your current bank accounts, it's worth looking into a cash management account to see if it would be a better fit.
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