What Is a Cash Management Account, and Where Can You Get One?
Bank With Your Broker
Most people keep their bank and brokerage services separate: Your bank is for checking and savings, and your brokerage firm is for long-term investments. But cash management accounts offer everything you need for day-to-day banking in a brokerage account—with several advantages over traditional banks.
What Is a Cash Management Account?
A cash management account is a brokerage account designed for managing cash, making payments, and earning interest.
The accounts are typically, but not always, separate from investment accounts at brokerage firms, but you can easily link them to investment accounts.
Simplify: A cash management account allows you to use one financial institution for your saving and investing needs. That means only one sign-on to keep track of, fewer statements and tax forms each year, and fast transfers to and from your investment accounts.
Earn interest: Cash management accounts pay interest, although you can often do better at online banks. But if you minimize idle cash and use long-term investments for your longer-term goals, the interest rate may not matter. It’s easy to transfer money to an online savings account if you want to earn more.
Most cash management accounts offer basic features like a free debit card and unlimited check writing. But some firms go above and beyond with stellar add-ons.
ATM rebates: If you move around a lot, look for a cash management account with generous ATM rebates. Some providers limit rebates to U.S. ATMs or specific networks, while others refund almost all ATM-related charges worldwide.
Easy access: Ask about monthly fees and minimum balance requirements to open an account. Unless you have tens of thousands of dollars, some brokerage houses are out of the question—or they’ll charge monthly fees.
Mobile deposit: Most cash management accounts accept direct deposit of your pay and Social Security benefits, but you may occasionally need to deposit a check. Especially when there’s no local branch, deposits with your mobile device are easiest. Otherwise, you’ll need to deposit by mail.
Helpful alerts: Stay up-to-date on what’s happening in your account. To avoid missing payments or bouncing checks, set up alerts to tell you when your account balance is getting too low. Prevent fraud by finding out about large withdrawals instantly.
Links to external banks: You’ll probably want to keep other bank accounts open, and it’s crucial to be able to transfer money easily. For example, excess cash can go to an online bank account to earn a higher APY, and you might want a local bank account for cash handling and a safety deposit box.
FDIC insurance: Cash management account providers automatically “sweep” your unused cash into investments that pay dividends or interest. If safety is important to you, research whether or not those sweep accounts are FDIC-insured.
That government-guaranteed program protects you in case the bank holding your money goes belly-up.
Where to Open an Account
If a cash management account appeals to you, open an account with the brokerage firm of your choice. Start by asking the institutions you already work with—it should be easy to add a new account, and your current holdings with that firm may help you qualify for extra perks.
If you’re starting from scratch, the Fidelity Cash Management Account is worth a look. That account is available with no minimum initial deposit, and there are no monthly fees—but it has plenty of horsepower for high-net-worth customers. You’ll get rebates on all ATM charges worldwide (except for foreign transaction fees), and Fidelity includes all of the must-have features described above. As a bonus, you can make mobile payments from your account using Apple Pay, and you can also apply for a rewards credit card that puts more cash into your cash management account.
What About Banks?
Cash management accounts are useful tools for money management. To understand the pros and cons, it may be helpful to compare these bank-like accounts to standard banks and credit unions.
FDIC coverage: Banks typically limit FDIC insurance to $250,000 per depositor per institution. Credit unions use NCUSIF insurance, which is just as safe. But cash management providers can spread your assets among several banks, multiplying your available coverage (while you only have one statement to deal with). Note that funds in a brokerage account are not FDIC-insured—it may take several days for your money to get covered, but SIPC insurance might cover your brokerage account.
Local presence: Most brokerage houses do not have local branches. If they do, those offices are not designed for high-volume banking needs. It’s probably helpful to keep an account with a local bank or credit union for in-person services.
Asset minimums: Although some brokerage firms do not have minimums, others require significant assets. For example, you might need $25,000 to start using cash management. Online banks regularly open accounts with no minimum balance requirement.
ATM fees: Banks are notorious for charging ATM fees. You often pay fees to the ATM owner, and your bank may charge additional fees for using a “foreign” ATM. Brokerage firms tend to either rebate those fees or offer access to multiple fee-free networks.