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? Read on for the answers.
What is a cash management account?
A cash management account is an account that is offered by a variety of financial institutions like a brokerage firm (including Fidelity). It generally offers some features of a checking account, savings account, and even a brokerage account. In fact, at Fidelity, a cash management account is 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 checking and savings, accounts, and as with those accounts, interest and gains on cash management accounts are taxable. Here are features that cash management accounts commonly offer, grouped by the type of account those features are most associated with:
Checking features
- Debit/ATM card to make purchases or withdraw cash
- Mobile check deposit
- Direct deposit and direct debits
- Bill pay
- Checkwriting
- Account to account transfers
- Person-to-person payments
- Overdraft protection and automated transfers (Fidelity’s Cash Manager function allows you to set target balances, make transfers, and establish the order of linked accounts to fund your cash management account so you maintain a minimum balance, you don’t overdraw, and you don’t exceed a maximum target balance. You’ll be notified if you do and you can decide what to do with excess cash, whether that’s, say, investing it or transferring it to another account.)
Savings features
- Potentially earn interest 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) on any cash you don’t invest. But that money is allocated across multiple partner banks, so it’s insured up to $250,000 per partner bank.1
Advantages of a cash management account
The potential benefits of opening a cash management account include:
- The ability to save, spend, and invest all from one account with Fidelity’s cash management account. This might make sense for people who want to streamline their banking and investing institutions.
- Potentially reimbursable ATM fees at ATMs around the world2
- 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 charge very low fees. Fidelity’s cash management account has no account fees or minimum account balances.
- Fidelity’s cash management account offers clients a choice of where to keep their cash. Clients can choose between a money market fund and an FDIC-insured cash option that offers clients up to $5 million of FDIC insurance. The former choice typically offers higher rates than the latter, but both offer competitive rates.
- Higher FDIC protection limits. At a traditional bank, your money is FDIC-protected up to $250,000 per depositor, per account type. With a cash management account, the institution partners with multiple FDIC-insured banks, aka program banks. So you could have more than $250,000 insured because any uninvested money is split among multiple banks. For example, up to $5,000,000 in uninvested money in Fidelity’s cash management account is insured.
Disadvantages of a cash management account
As with any account, there could be some downsides. 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 FCMA 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:
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.
Savings
A cash management account can 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).
Brokerage features
Quick refresher on what a brokerage account is: It allows you to invest in a wide variety of investment options including stocks, bonds, mutual funds, and ETFs. An investor generally opens a brokerage account to potentially grow their money, either because of income, like dividends from certain stocks or interest from bonds, or because the value of an investment increases—aka, a stock’s price goes up. A key difference between typical brokerage accounts and cash management accounts: Brokerage accounts generally lack the checking-account-like features of cash management accounts. With Fidelity’s cash management account, which is a brokerage account, you can invest cash, but then that money would go from having FDIC insurance to SIPC coverage. That covers the account in case of bankruptcy; it doesn’t protect against investment loss. If your FCMA cash isn’t being held in the money market fund offering (covered by SIPC as a security), uninvested cash balances are eligible for FDIC insurance.
When to consider a cash management account?
You may want to consider a cash management account if you want the cash access of a checking account, potential interest of a savings account, and 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.
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
- 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
Another factor that might figure into your decision on where to open a cash management account: considering an institution where you already invest, as in, where your 401(k), IRA, or brokerage account is held. That way, to invest the cash in your cash management account, you could easily transfer money from the cash management account to the investment account.
How to open a cash management account
To open an account, you could usually apply online in minutes. Here’s how to open a cash management account at Fidelity:
If you’re already a Fidelity customer:
- 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 that 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, click “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.