If you’ve invested with a brokerage firm in recent years, you may have noticed that your brokerage offers a product called a cash management account. These accounts are very similar to a checking or savings account and typically provide competitive interest rates, debit cards and other money management features. However, those services aren’t always standard.
So what, then, would be the appeal of opening a CMA with a brokerage? Here are some things to consider when deciding whether to let your brokerage help you manage your cash.
How are cash management accounts different from bank accounts?
Perhaps the most crucial distinction between a CMA and a bank account is that CMAs are offered by nonbank financial institutions that do not possess a bank charter. Usually, this would mean that CMAs cannot provide their customers federal insurance on their balances, but many brokerages partner with chartered banks that sweep customers’ funds into bank accounts behind the scenes. That allows them to offer insurance from the Federal Deposit Insurance Corporation on customer balances.
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What are the pros and cons of cash management accounts?
Pros
Interest rates tend to be higher than rates at traditional banks. Though some brokerages don’t offer much interest on their CMAs, others offer significantly higher interest rates than the national average of 0.06% for savings accounts. Robinhood Cash Management, for example, offers 0.30%, and SoFi Money offers 0.25% with a $500 minimum balance.
CMAs have benefits that are similar to checking and savings accounts. Some CMAs offer such account benefits as free ATM access, debit cards, mobile check deposit, early direct deposit and no monthly maintenance fees.
Transfers between CMAs and investing accounts can be faster. When you have a CMA at your brokerage, you may be able to avoid a waiting period between account transfers so that you can invest your money faster.
Joel Parker, a financial blogger and podcaster from Massachusetts, has a Fidelity Cash Management Account and appreciates the speed of transfers that would otherwise take between one and three days from a non-Fidelity account.
“I use Fidelity for my daughter’s 529 account, and it is nice that I can do a transfer to that account instantly,” Parker says. “If I had my primary brokerage account with Fidelity, it would be the same way.”
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