If you've invested with a brokerage firm in recent years, you may have noticed that your brokerage offers a product called a cash management account, or CMA. These accounts are very similar to a checking or savings account and typically provide competitive interest rates, debit cards and other money management features.
Brokerages now offering accounts similar to checking, savings accounts
But there are some caveats, and investors should research what your brokerage's accounts offer.
By Chanelle Bessette, NerdWallet
December 11, 2021 at 2:00PM
However, these features are not standard, and while many brokerages partner with chartered banks to insure deposits in CMAs, this isn't required.
Also, CMA customer service is typically online only. Most CMA providers offer only remote customer service because they don't have branches. As a result, customers who open an account will need to be comfortable with service options that aren't in person.
One of the other big practical perks when it comes to keeping a CMA with your brokerage? You have less to keep track of by keeping your cash accounts and your investment accounts at the same place.
As with any financial product, consumers should do their research to determine whether a CMA makes sense for their lifestyle and if the perks work for their spending, saving and investing habits.
Here are some other things to consider when deciding whether to let your brokerage help you manage your cash.
Pros
- Interest rates tend to be higher than rates at traditional banks. Robinhood Cash Management, for example, offers 0.30%, and SoFi Money offers 0.25% with a $500 minimum balance.
- CMAs have benefits that are similar to checking and savings accounts. Some CMAs offer such account benefits as free ATM access, debit cards, mobile check deposit, early direct deposit and no monthly maintenance fees.
- Transfers between CMAs and investing accounts can be faster. When you have a CMA at your brokerage, you may be able to avoid a waiting period between account transfers so that you can invest your money faster.
Joel Parker, a financial blogger and podcaster from Massachusetts, has a Fidelity Cash Management Account and appreciates the speed of transfers that would otherwise take between one and three days from a non-Fidelity account.
"I use Fidelity for my daughter's 529 account, and it is nice that I can do a transfer to that account instantly," Parker says. "If I had my primary brokerage account with Fidelity, it would be the same way."
Cons
- Interest rates have dropped. The financial industry is currently in a low-rate environment, meaning interest rates on deposit accounts are particularly low at the moment. Several CMAs that launched in recent years had notably high interest rates at first, but they dropped significantly in mid-2020 after the start of the COVID-19 pandemic.
- Though most brokerages have deals with chartered banks to insure CMAs, this is not a requirement.
Easier to invest?
When it comes to investing, timing can be critical. Missing a day or two of having your cash in the market — say, the amount of time it takes to transfer cash from an outside account into your investing account — could mean losing out on market gains. By having all of your accounts in one place, you can take advantage of vital time in the market to potentially earn more money on your cash.
"First and foremost, you are likely setting up a one-stop shop for yourself so you can bank, save and invest all in one," Leah Bourne, the managing editor of the investing education website the Money Manual, said by e-mail. "Many of the companies that offer these accounts have made the ability to transfer money between accounts really, really easy. If you are actively investing, this is a big pro."
about the writer
Chanelle Bessette, NerdWallet
The retail supply chain software company has purchased Carbon6 Technologies and Supply Pike, which work with Amazon and Walmart, respectively.
