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Understanding Cash Management Accounts: A Guide by O1ne Mortgage

Checking and savings accounts aren’t your only options when it comes to managing your money efficiently. Cash management accounts (CMAs) offer some of the best features of both checking and savings accounts combined, although you won’t find a CMA at your local bank.

How Do Cash Management Accounts Work?

CMAs are held at non-bank institutions like investment or brokerage firms. They typically earn higher interest rates than regular savings accounts and offer features such as check-writing, debit cards, or online bill pay. Your money is swept into one or more accounts at a partnering bank, earning interest and generally being insured by the Federal Deposit Insurance Corp. (FDIC). This can provide higher FDIC insurance limits if your funds are held in multiple accounts at multiple banks.

Pros and Cons of Cash Management Accounts

Pros

• Higher FDIC coverage limits by sweeping funds into multiple accounts.
• Competitive interest rates compared to regular savings accounts.
• Fewer fees, such as maintenance or ATM surcharge fees.
• Combines checking and savings features into one account.
• Earn interest on your checking account balance.

Cons

• Lack of personalized service due to an online focus.
• Potential FDIC insurance gaps while funds are in transit.
• Varying features between different brokerages and accounts.
• No separation for savings, which might lead to accidental spending.
• Possible balance requirements and account fees.
• Other accounts may offer better interest rates.

Cash Management Accounts vs. Checking

Some CMAs function very much like checking accounts, but there are differences between using a bank or credit union and an investment or brokerage firm. Banks offer a full range of deposit and payment options and FDIC insurance up to $250,000 per person and account ownership type. In contrast, CMAs may exceed this limit by sweeping funds into multiple bank accounts, eliminating the need for separate checking and savings accounts.

How to Choose a Cash Management Account

Interested in learning more? Here’s how to better understand your options when it comes to CMAs and find an account that may be right for you:

• Find a financial institution: Start with your current brokerage or investment advisory firm, but also search online for alternatives.
• Compare APYs: Look at multiple options, including high-yield savings accounts, money market accounts, and CDs.
• Shop for features: Consider what you need, such as a debit card, mobile check deposit, online bill payments, and direct deposit.
• Check FDIC insurance coverage: Ensure your entire balance will be covered, especially if it exceeds $250,000.
• Consider convenience: Evaluate how easy it is to access information and get help, and how quickly you can transfer money between accounts.

The Bottom Line

A CMA is a bank account alternative that may replace your traditional checking and savings accounts while earning you competitive interest on your entire balance and offering a higher limit on FDIC insurance coverage. If you’d like to streamline your finances, a CMA might help you simplify, especially if you are an active investor or a retiree receiving regular distributions from a retirement investment account.

Finding a CMA online is easy, but investigate multiple options to find the one that’s right for you. Ultimately, you may also decide that conventional checking and savings accounts—and the banking relationship that goes with them—are a better fit for you.

For any mortgage-related needs, call O1ne Mortgage at 213-732-3074. We’re here to help you make the best financial decisions.

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