Looking for a place to stash your cash, get your paycheck deposited, pay bills, and earn some interest? Cash management accounts might be the solution for you. While they aren’t traditional bank accounts, they offer similar functionalities along with additional benefits such as fee-free ATMs, competitive annual percentage yields (APY), and no overdraft fees.
Cash management accounts can be found at financial institutions other than banks or credit unions, often offered by brokers or robo-advisors. These accounts are often overlooked as a way to grow your savings at higher interest rates compared to traditional banks, without monthly fees or minimum balance requirements.
Leading cash management accounts in 2024 include Wealthfront, Fidelity, Charles Schwab, Betterment, and Interactive Brokers, each offering unique features and benefits to consumers.
Pros and cons of cash management accounts
Pros
- Easier to invest: Many brokerage firms and robo-advisors offer cash management accounts, making it convenient to start investing your savings.
- Interest boost: Cash management accounts often earn higher interest rates than traditional bank savings accounts.
- FDIC insurance: Some cash management accounts provide FDIC insurance on funds beyond the typical limit of $250,000.
Cons
- Interest below high-yield savings accounts: Cash management accounts may offer lower interest rates compared to high-yield savings accounts.
- Online only: Many cash management accounts are offered by online institutions, which may not suit those who prefer in-person banking.
- Minimum balances: Some cash management accounts require high minimum balances or regular deposits to access all features.
What is the difference between a savings account and a cash management account?
Cash management accounts are typically offered by non-bank financial institutions like brokerage firms or robo-advisors, providing similar features to savings and checking accounts with investment options. In contrast, savings accounts offered by traditional banks do not offer investment options and generally yield lower interest rates.
As the line between brokerage and traditional bank accounts blurs, consider exploring brokers and robo-advisors to see how they stack up against traditional banks and whether moving some of your business to them makes sense.
Bottom line
Don’t overlook the benefits of using a cash management account from a broker or robo-advisor, even if you don’t intend to use the investing features. They can offer a comprehensive solution for managing your finances under one roof.