What Is A Cash Management Account?

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A cash management account is like getting the best features of a checking account and savings account rolled into one. Instead of coming from traditional banks, these accounts are offered by investment companies and robo-advisors.

The main reason people choose them is simple: They can keep large amounts of money safe while earning competitive interest rates. If you have more than $250,000 in cash, these accounts automatically spread your money across multiple banks to ensure it’s all FDIC-protected — something you’d have to do manually with regular bank accounts.

Think of it as a smarter way to handle cash when you have substantial amounts but still want easy access to your money.

When cash management accounts make sense

“Cash management accounts solve a real problem for people with significant cash,” says Hanna Horvath, CFP and Bankrate Banking Editor. “If you’re sitting on a large sum — maybe you sold a house, got an inheritance or you’re between investments — these accounts let you earn decent returns while keeping your money liquid and fully protected.”

How cash management accounts work

Cash management accounts protect your money and maximize returns through a process called “sweeping,” where your deposits are automatically distributed across multiple FDIC-insured banks.

When you deposit money into a cash management account, your provider doesn’t keep it in a single account. Instead, they divide your funds among several partner banks, typically keeping each portion under the $250,000 FDIC insurance limit per bank.

Let’s say you deposit $800,000. The company might put $200,000 each into four different banks. Since each bank account stays under the $250,000 FDIC insurance limit, all $800,000 is protected.

This all happens automatically — you don’t see it or manage it. When you want to spend money or move it around, the company handles shifting funds between the different banks so you always have access to what you need.

You typically get a debit card and can write checks just like with any checking account. Many also connect easily to investment accounts, so you can move money back and forth between cash and investments without hassle.

Pros and cons of cash management accounts

Pros

• The ability to get full FDIC protection on amounts well over $250,000 without having to open multiple bank accounts yourself.
• You earn better interest than most traditional checking accounts.
• Since most CMAs come from investment companies, it’s usually simple to move money between your cash account and your investment accounts.
• Most accounts include debit cards, check writing and even reimburse ATM fees no matter where you withdraw money.
• Unlike savings accounts that restrict how many withdrawals you can make each month, cash management accounts usually let you access your money whenever you need it.

Cons

•  Most cash management accounts don’t offer things like bill pay, mobile check deposit or the kind of customer service you get from traditional banks.
• These accounts are mostly available online only.
• While cash management accounts often pay good rates, some dedicated high-yield savings accounts or CDs might pay more.
• If you have less than $250,000 in cash, you don’t need the extra FDIC protection.
• While many have eliminated fees and minimums, some cash management accounts still require large minimum balances or charge monthly fees.

Cash management accounts vs. other account types

Here’s how cash management accounts stack up against what you might be used to:

Cash management accounts occupy a unique middle ground, offering more features than savings accounts while providing better yields than most checking accounts.

Is a cash management account right for you?

Cash management accounts aren’t for everyone. Here’s when they make sense and when they don’t.

You might want a cash management account if you:

• Have more than $250,000 in cash and want it all protected
• Already work with an investment company and want everything connected
• Are comfortable doing your banking online
• Want competitive interest rates but still need easy access to your money
• Don’t rely heavily on traditional banking services like bill pay

You’re probably better off with regular accounts if you:

• Have less than $250,000 in cash (regular FDIC coverage handles this fine)
• Like going to bank branches or need in-person help
• Use lots of banking features like online bill pay or mobile deposits
• Can find higher interest rates elsewhere and don’t mind giving up some convenience
• Want the simplicity of traditional banking

Remember, you don’t have to choose just one type of account. Many people use cash management accounts for their large balances while keeping regular checking accounts for everyday banking.

The best cash management accounts

If you think a cash management account makes sense for you, here are some good choices:

Making your decision

Most people don’t need cash management accounts. If you have typical amounts of money in checking and savings, regular bank accounts will probably work just fine and might even be simpler.

Consider a cash management account if you have substantial cash that exceeds FDIC limits, do investing and want everything connected, are comfortable with online banking or want competitive rates while keeping easy access to your money.

Stick with traditional banking if you have less than $250,000 in cash, like branch banking or in-person service, need extensive banking features, or can find better rates in dedicated savings accounts.

Bottom line

The main advantage of a cash management account is likely that it allows for higher FDIC insurance limits than a standard savings account. This can make cash management accounts a good choice for anyone who has more than $250,000 in savings. It pays to compare a cash management account with standard savings and checking accounts, to find the one with the highest APY and that has all of the features you’re seeking.

Ready to explore your options? Start by comparing high-yield savings accounts to see current rates, or look at money market accounts that offer some similar features.

For everyday banking, consider checking accounts that can work alongside a cash management account strategy.