The Ins & Outs Of Cash Management Accounts

The Ins & Outs Of Cash Management Accounts

by Sep 26, 2019Financial Planning

If nothing else, the consumer banking industry is persistent. In its tireless crusade to invent new products (and repackage old ones), one of the latest inventions to arrive is called a cash management account.

If you’ve never heard of a cash management account before, you’re certainly not alone. But because cash management accounts differ in some key ways from traditional checking accounts, it’s worth discussing them in a bit more detail.

What Is A Cash Management Account?

While the exact details of a particular account will differ depending on which bank or brokerage is offering it, the basics of a cash management account are all fairly similar. Basically, these accounts combine high-interest savings rates with the accessibility of a checking account.

Another way to think of it would be to imagine giving your checking account the same interest rate as a certificate of deposit. This is why some banks refer to cash management accounts as “hybrid checking accounts.”

Sounds Good, So What’s The Catch?

So far, so good right? A high-interest checking account is the best of both worlds. So … what’s the catch?

Well, the catch is that (in most cases) cash management accounts are only offered by online-only banks and brokerages. The reason these institutions can offer such a seemingly-great product is that they don’t have all the overhead (employees, physical locations, etc.) of traditional banks.

What this means for consumers is that the only way to get customer service for a cash management account will likely be through a website or mobile phone app. This may not phase those already accustomed to dealing with online-only businesses, but for seasoned investors and non-millennials, it may be a cause for concern.

Should I Switch To A Cash Management Account?

Right now the biggest reason not to switch to a cash management account exclusively is that many of the companies offering them fall into the category of technology startups. While your money will be FDIC insured if the company ceases to exist, it may create a hardship for you in other ways.

If you want to learn more about cash management accounts, here are some of the most popular offerings currently on the market:

Before making a switch, consider speaking with an experienced financial planner as well. A financial planner can help you evaluate your current financial situation, suggest alternate ways to save, and find investments that may be a better fit for your lifestyle and goals.

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