If you have cash and want to keep it somewhere other than under the mattress or at a traditional bank or credit union, you have a few options. One of them is a cash management account. But what is a cash management account and how does it compare to other places to stash your money?
What is a cash management account?
A cash management account is an account that is offered by a variety of financial institutions such as a brokerage firm (including Fidelity, which offers it to current customers who already have other accounts here, such as a brokerage account, individual retirement account (IRA), health savings account (HSA), or workplace 401(k)). A cash management account generally offers features of a high-yield savings account, checking account, and even a brokerage account. Cash management accounts at different institutions can have slightly different features. In this article, we'll mostly discuss traits of Fidelity's cash management account.
How does a cash management account work?
A cash management account can offer you some of the best features of a high-yield savings account and a checking account. Here are features that cash management accounts commonly offer, grouped by the type of account those features are most associated with:
Savings features
- Potentially earn interest and/or dividends on cash you keep in the account. (Fidelity's cash management account offers competitive rates.)
- Federal Deposit Insurance Corporation (FDIC) protection (which checking accounts offer too). But that money is allocated across multiple partner banks, so it's insured up to $250,000 per partner bank.1
Checking features
- Debit/ATM card to make purchases or withdraw cash
- Mobile check deposit
- Direct deposit and direct debit
- No foreign debit transaction fees
- Bill pay
- Checkwriting
- Account to account transfers
- Person-to-person payments
- Overdraft protection and automated transfers, allowing customers to set minimum and maximum balance thresholds
Advantages of a cash management account
The potential benefits of opening a cash management account include:
- Fidelity's cash management account offers clients a choice of where to keep their cash. Clients can choose between Fidelity® Government Money Market Fund SPAXX, which is subject to market loss and covered by the Securities Investor Protection Corporation (SIPC) but not FDIC-insured, and a cash option that offers clients up to $4 million of FDIC insurance.
- Higher FDIC insurance limits. At a traditional bank, your money is FDIC-insured up to $250,000 per depositor, per account type. With a cash management account, the institution works with multiple FDIC-insured banks, aka program banks. So because any uninvested money is split among multiple banks, you could have more than $250,000 in insured deposits. For example, up to $4,000,000 in uninvested money in Fidelity's cash management account is insured.
- The ability to save and spend from one account with Fidelity's cash management account. This might make sense for people who want to consolidate accounts held at different institutions.
- Potentially reimbursable ATM fees at ATMs around the world.2 (Fidelity's offers global reimbursement of ATM fees.)
- Low or no fees, depending on where you hold your account. Some cash management accounts don't charge monthly maintenance, foreign transaction, or overdraft fees. Others may charge such fees. Fidelity's cash management account has no account fees to open.
Disadvantages of a cash management account
As with any account, there could be some drawbacks. For cash management accounts in general, the possible cons include:
- You might only be able to deposit money digitally—that is, you might not be able to deposit physical cash via an ATM like you could with a traditional bank account. But some cash management accounts offer ATM cash depositing.
- You might not be able to get a cashier's check if you need one.
- You might not be able to get customer service from a live human. If you're comfortable with online or phone assistance, though, a lack of face-to-face interaction at a brick-and-mortar building might not be a dealbreaker. And some cash management accounts do offer face-to-face assistance at brokerage firm branches.
- You might not be able to order physical foreign currency ahead of your international trip (but the Fidelity Cash Management Account reimburses global ATM fees, should you need to take out cash while you're abroad).
Cash management account vs. other accounts
Even though cash management accounts share similarities with other kinds of accounts, there are some key differences:
Savings
A cash management account can potentially earn income like a savings account, but generally, no matter where it's held, it doesn't limit withdrawals like some savings accounts do (6 to 10 per month, depending on the bank). And some savings accounts don't offer a debit card and checkwriting like a cash management account could. (Fidelity's does.)
Checking
While a cash management account may offer some of the same features as a traditional bank checking account—like bill pay, a debit card, and mobile deposit—generally, a cash management account might offer a higher interest rate than a checking account. Another point of differentiation between checking accounts and Fidelity's cash management account: Bank checking accounts don't all reimburse ATM fees at machines outside of their bank's network.
When to consider a cash management account
You may want to consider a cash management account if you want the potential interest of a high-yield savings account without fees or minimums, the cash access of a checking account, and, depending on where you open a cash management account, the ability to invest of a brokerage account. Or a cash management account could work for someone who has more cash than the FDIC insurance limit of $250,000 and still wants that protection on uninvested money across multiple partner banks without having to open multiple accounts. Note that you must elect the FDIC-Insured Deposit Sweep option for your cash and that, as with other accounts that generate income, interest on cash management accounts is taxable.
Considerations before you open a cash management account
You might want to compare a few of the following features when shopping around for a cash management account:
- Choices for where your cash is held, the interest rates/yields on cash, and FDIC insurance
- Fees
- Balance minimums to open an account
- Access to your money—does it offer a debit card? Checkwriting?
- Features like bill pay and mobile/direct deposit
- ATM network and fees or reimbursement policy
- Connection to peer-to-peer payment apps
How to open a cash management account
To open an account, you can usually apply online in minutes.
- First, log into your Fidelity account. You'll be asked if this will be an individual or joint account (in which case you'll need the other person's information, like their Social Security number).
- Next, Fidelity will fill in your application with information from your existing profile.
- If you'd like to order a no-fee debit card that reimburses ATM fees globally, you'll be able to do that here, along with verifying personal and employment information.
- You'll also be given a list of documents related to the account to review.
- When you're ready, select "Open account."
- Finally, transfer money into your account by direct deposit, mobile check deposit, or electronic funds transfer. When the account is active, you can generally make purchases, pay bills, set up direct debit for recurring bills, and write checks.