If you’ve invested with a brokerage firm in the past few years, you may have noticed that your brokerage firm offers a product called a cash management account, or CMA. These accounts are very similar to a checking or savings account and generally offer competitive interest rates, debit cards, and other money management features.
However, these features are not standard, and although many brokerage firms partner with chartered banks to insure deposits in CMAs, it is not required.
Additionally, CMA’s customer service is generally online only. Most CMA vendors only offer remote customer service as they do not have branch offices. As a result, customers who open an account will need to be comfortable with service options that are not in person.
One of the other big practical benefits when it comes to maintaining a CMA with your brokerage? You have less to keep up with by keeping your cash and investment accounts in one place.
As with any financial product, consumers should do their research to determine if a CMA is right for their lifestyle and if the benefits match their spending, saving and investing habits.
Here are some other things to consider when deciding to let your brokerage firm help you manage your cash flow.
- Interest rates tend to be higher than traditional bank rates. Robinhood Cash Management, for example, offers 0.30% and SoFi Money offers 0.25% with a minimum balance of $ 500.
- CMAs have similar advantages to checking and savings accounts. Some CMAs offer perks such as free ATM access, debit cards, mobile check deposit, early direct deposit, and no monthly maintenance fees.
- Transfers between CMAs and investment accounts can be faster. When you have a CMA in your brokerage, you may be able to avoid a waiting period between account transfers so that you can invest your money faster.
Massachusetts financial blogger and podcaster Joel Parker 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 on my daughter’s 529 account, and it’s nice to be able to transfer to that account instantly,” Parker says. “If I had my primary brokerage account with Fidelity it would be the same.”
- Interest rates have come down. The financial sector is currently in a low interest rate environment, which means interest rates on deposit accounts are particularly low right now. Several CMAs that have been launched in recent years had particularly high interest rates to begin with, but they dropped significantly in mid-2020 after the start of the COVID-19 pandemic.
- While most brokerages have arrangements 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 money in the market – say, the time it takes to transfer money from an outside account to your investment account – could mean losing market gains. By having all of your accounts in one place, you can take advantage of vital time in the market to potentially make more money out of your money.
“First and foremost, you’re probably creating a one-stop-shop for yourself so that you can bank, save and invest in one,” said Leah Bourne, editor of the online education website. investment matters The Money Manual, by e-mail. . “Many companies that offer these accounts have made it really, really easy to move money between accounts. If you’re actively investing, he’s a big pro.”