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What Is a Cash Management Account (CMA)?

What Is a Cash Management Account (CMA)?
Chris Alexis
Chris AlexisUpdated August 8, 2023
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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
A cash management account, or CMA, is an account in which you can often earn a higher interest rate than a checking account yet still withdraw money as you need it. CMAs are not held in banks; but rather with investment advisory firms or broker-dealers. Much of the money management happens online as opposed to physical buildings. More people are flocking to them because it’s a simple way to store money and access it when needed — all while enjoying competitive interest rates.Keep reading for more information on how CMAs work, their pros and cons, and a direct comparison between these accounts and typical checking accounts. 

How Does a Cash Management Account Work? 

As we mentioned above, cash management accounts are not offered by banks. The financial institution you use for your CMA will accept your deposits, but often they won’t store or manage the money you’ve put into their hands. Instead, these financial institutions will take your money and then hand it over to either a traditional bank or a network of banks (sometimes referred to as “program banks”) to actually store the money. These transfers are called “sweeps” and typically occur at the conclusion of each business day. Once your money is settled in the program bank or banks, it is protected by FDIC insurance (if that bank has it) and begins earning interest. (The Federal Deposit Insurance Corporation (FDIC) is an independent agency of the United States government. It guarantees your money usually up to $250,000 per depositor, per insured bank, per account ownership category.)Let’s say you deposit $1 million using a CMA account. The financial institution can break up that deposit and spread those dollars across multiple banks, which can protect the full amount from an FDIC perspective due to that $250,000 limit. At that point, you can begin accessing it through the various features your CMA offers, whether those are ATMs, debit cards, checkbooks, etc. Be sure to speak with a representative at the financial institution you choose about their features.Some people wonder how they can deposit cash into a cash management account when they are typically online only. Remember that some CMAs offer fee-free ATM access, but make sure to check with your specific account on whether or not you’ll be charged a fee. You can deposit your physical dollars through that or make a transfer from your regular checking account. If your CMA has a brokerage aspect to it, you can funnel your money directly into an investment account. This is typical, as cash management accounts are usually housed in institutions like investment advisory firms and broker-dealers. 

Pros of Using a CMA

Many people enjoy CMAs because numerous providers offer higher interest rates than seen in traditional accounts. Many also offer low or no fees. The low overhead for some CMAs allows them to do this. As mentioned above, you can possibly get FDIC protection for funds that far exceed the $250,000 limit because CMA providers can spread your deposit across multiple banks. (Not all CMAs use multiple banks, so be sure to read how many partner banks are used.)You can also simplify your finances through CMAs, which often allow you to make transitions and tap into credit lines attached to your investment securities. This takes away the hassle of making transfers between different accountsNot everything about cash management accounts are ideal, however. Let’s look at some aspects to be wary of next. 

Cons of Using a CMA

Your money won’t be FDIC-insured until it’s swept, which can be risky. However, all brokers are members of the Securities Investor Protection Corporation, also known as SIPC, and enjoy that insurance. This protects the securities in a brokerage account up to $500,000, including $250,000 for claims for cash.CMAs typically exist online, which can make things easy. However, it may be difficult to receive face-to-face customer service because you often can’t simply stroll into a branch. You also may not be able to enjoy all the features that come with typical checking accounts. In essence, you’re giving up a certain level of functionality in exchange for those higher interest rates and streamlined services.While some CMAs have low or zero fees, others may have charges that are a bit steeper or have high minimum balances. This is why it is always crucial to read the fine print and thoroughly understand your provider’s policies before deciding to create an account with them. Finally, you may be missing out on better interest rates by not using other online savings accounts. That’s why it’s so crucial to shop around.Recommended: Guide to Savings Account Fees

Cash Management Accounts vs. Checking Accounts

One of the biggest differences between a CMA account and a checking account is that cash management accounts might allow you to collect higher interest on your money. Sure, you can find checking accounts that generate interest, but they’re uncommon and often their rates don’t hold a candle to what you can earn through a CMA. Fees are also less common in CMAs than they are with high-yield checking accounts. Keep in mind, though, that some cash management accounts may have those higher minimum balances. However, both CMAs and checking accounts often offer mostly similar services, including ATM cards, a checkbook, and online and mobile account management. 

The Takeaway

Cash management accounts may be a good choice for those who want a higher level of FDIC protection for their funds, the ability to grab a high-yield interest rate, and a direct connection to an investment account.However, they don’t offer all the same features as banks, a lack of in-person customer service may be frustrating, and higher interest rates may be found elsewhere. These pros and cons must be weighed before a decision is made. To help you make the right choice, make sure to shop around for both CMAs and other high-yield options, including online high interest savings accounts.Lantern can help you compare online savings accounts and find today’s best rate.

Frequently Asked Questions

What is the difference between a cash management account and a savings account?
Are cash management accounts safe?
Can you take money out of a CMA account?
Photo credit: iStock/fizkes

About the Author

Chris Alexis

Chris Alexis

Chris Alexis has been putting pen to paper and fingertips to keyboard since his youth. He ultimately grew into an accomplished and award-winning writer who loves using the power of language to connect with audiences. He also strongly enjoys learning about who he is writing for so he can create something that will truly resonate with them. He has worked for a variety of companies, each of which have given him more experience and insight.
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