What Is A Cash Management Account

Many people are not aware of cash management accounts, and maybe you are among them and asking yourself the question, ‘what is a cash management account? If you ask most people the type of bank accounts they own, you will find out that they have savings or checking accounts. Different types of accounts differ on how you can use them. However, the core purpose is to help you manage your finances.

It is not easy to manage money well if you do not keep it in a financial institution account. Some people tend to save money in their houses other than in the bank. You may end up misusing money that could have helped you to carry out some development activities such as building a residential, buying land, buying shares, and so on. Also, the money is vulnerable to theft in case thieves break into your house.

Anytime you want to open an account, you must have a purpose. Some open an account to save money for the day-to-day expenditures, their retirement, or for future investment, among other reasons. Modern-day financial institutions allow you to manage your money online, and you do not have to visit your bank now and then. It makes them convenient.

What is a cash management account?

what is a cash management account

A cash management account is a type of account you open with a financial institution to help you manage your cash in one portal. The best cash management accounts allow you to access your account using your mobile phone anytime and anywhere online. A cash management account combines the features of a savings and checking account. It means that you can save, withdraw, pay bills, and send money to others.

Again, a cash management account has an advantage in that you can invest your money instead of staying idle in your account. You can invest in various securities such as stocks, shares, bonds, and ETFs. It means that you will make money as you save.

It is important to note that a cash management account becomes very useful if you have various accounts as it helps you manage the cash flow under one account. You will not waste time tracking an individual account since every bank account is under one umbrella. Financial institutions calculate interest rates for cash management accounts and pay you every month.

How does a cash management account work?

You can get a cash management account from other financial institutions other than banks and credit unions. Usually, brokerage firms offer cash management accounts to help you grow some interest, make payments while at the same time managing your money. Interest rates for cash management accounts are higher than ordinary bank accounts.

Most cash management accounts have debit cards so that you can use to withdraw money at ATM points, pay for goods and services at restaurants, supermarkets, grocery stores, and filling stations, among others. You can also pay online using your smartphone.

Cash management accounts offer mobile deposits, ATM rebates, Banking alerts, and Cashback on purchases. Others, such as the Fidelity Cash Management account, provide credit cards so that you can borrow money for various uses.

Some cash management accounts require you to maintain a minimum balance while others may not. All in all, you need other bank accounts to link to your cash management account.

Benefits of a cash management account

The benefits of cash management accounts are many. These include the following.

  • You can manage various bank accounts under one roof. You will find it easy to manage multiple bank accounts instead of wasting time controlling each bank account.
  • Cash management accounts earn higher interest rates as compared to ordinary bank accounts. Once you deposit your money with the financial institutions, they usually put the money into use to give you returns.
  • They combine the checking and savings accounts features. You can save, pay bills online, withdraw money at ATM points, transfer funds, and so on.
  •  You can invest in securities to earn more.
  • You can use a cash management account in place of traditional banks.

What things should you consider about a cash management account?

You cannot wake up and open any cash management account you come by. The salespeople usually focus on the positive areas when convincing people to open accounts with them. You, therefore, should ensure that you check how they operate. The following are worth checking.

i) Minimum balance requirements

Various cash management accounts require you to maintain a certain minimum balance. You should be very careful to see the minimum balance an individual account requires. Some need you to have a minimum balance of thousands of dollars, and this can be inconvenient. Others have no minimum amount requirement.

ii) Fees

Check on the various fees available such as the monthly fees, annual fees, and the fees charged for other services such as financial advice. Some have hidden charges, and you have to read the terms and conditions properly.

iii) FDIC coverage

FDIC coverage ensures that your money is safe in case a brokerage firm crumbles. Cash management accounts usually ‘sweep’ the money you save to partner banks with FDIC insurance. You should make sure that the financial institution has FDIC insurance.

iv) Services

Also, check the various services offered. Accounts that offer Robo advisers services may charge some fees.

v) Investment services

Does the cash management account allow you to invest in various money-generating platforms such as securities? Your money should not just lie in your account and should also earn you more.

Best cash management account summary

I have researched some of the best cash management accounts you can open today. These include;

1) Wealthfront Cash Account

Wealthfront Cash Account can be useful to manage your cash since it has no monthly fee. Again, the account requires a $1 minimum balance of which you will not find difficult to maintain such a balance. It has an annual percentage yield of 0.35%.

2) SoFi Money

SoFi money is a reputable company that many people prefer to save their money. Although it has a minimum balance requirement of $500, you will always see the right side of it. It has an APY of 0.25% and requires no monthly fee.

3) Betterment Cash Reserve

If you invest with Betterment Cash Reserve, you will benefit from the 0.40% APY. Furthermore, you will not have any monthly payments, and your minimum balance can even fall to zero.

4) Aspiration Spend & Save Account

Aspiration Spend & Save Account has zero monthly fees. It also has a zero minimum balance requirement, and its APY is high and goes up to 1%. The minimum balance requirement for Aspiration Spend & Save Account is zero.

5) Fidelity Cash Management Account

Fidelity Cash Management Account has an APY of 0.01%. Also, it has no minimum balance requirement. Furthermore, the monthly fees are zero. Nerdwallet rates it at 4.0/5.0.

6) Robinhood Cash Management

The company has an APY of 0.30%. Invest as much as you would wish and earn more. It does not have monthly fees, nor does it require a minimum balance.

7) Personal Capital Cash™

Personal Capital Cash has an APY of 0.01%. Furthermore, the monthly fee requirement is zero. You can also maintain a zero minimum balance since there are no limitations.

Below is the summary in terms of the monthly fees and the APY of various cash management accounts.

Institution Monthly Fee APY Minimum balance
Wealthfront Cash Account $0 0.35% $1
SoFi Money $0 0.25% $500
Betterment Cash Reserve $0 0.40% $0
Aspiration Spend & Save Account $0 1.00% $0
Fidelity Cash Management Account $0 0.01% $0
Robinhood Cash Management $0 0.30% $0
Personal Capital Cash™ $0 0.01% $0

Cash Management Account vs. Checking Account. Which is better?

Even though you can send money with a checking account number instantly using either a Cash Management Account or Checking Account, there are some notable differences. They include the following.

  • Brokerage firms run cash management accounts while banks and credit unions run checking accounts.
  • Cash management accounts split funds among different banks while checking account money remains in one single financial institution.
  • Some cash management accounts may have huge minimum balance requirements, while checking accounts usually have low or no minimum requirements.
  • Cash management accounts may not have insurance on the deposited money, while checking accounts have FDIC insurance.
  • While cash management accounts refund ATM fees, checking accounts charge fees when you use ATM services out of network.
  • Cash management accounts connect to investment accounts, while checking accounts are separate from investment accounts.
  • The cash management accounts have no brick and mortar location, while institutions with checking accounts may have a physical location.

Looking at the above comparisons, cash management accounts are better since they have more benefits.

Pros and cons of the cash management accounts

Any financial product has a good and a wrong side. Cash management accounts have pros and cons.

  • Easy to create online using your smartphone or computer
  • It makes it easy to manage cash under one roof
  • Have options to invest
  • Combines features of checking and saving accounts
  • It simplifies banking
  • Some have monthly fees and a minimum balance requirement
  • Have potential errors when they transfer money across various banks
  • Has low-yielding investments
  • Some aspects such as the money market have no insurance, and you can easily lose your money

Bottom line

A cash management account allows you to manage money in various bank accounts under one roof. It helps you to save time that you could have lost when managing individual accounts. When opening a cash management account, you should check the monthly fees, the minimum balance requirement, and the services they offer.

Cash management accounts combine the features of the savings and the checking accounts. You should always read the terms and conditions before opening a cash management account.