not possess a bank charter. Usually, this would
mean that CMAs cannot provide their customers
federal insurance on their balances, but many
brokerages partner with chartered banks that
sweep customers’ funds into bank accounts
behind the scenes. That allows them to offer
insurance from the Federal Deposit Insurance
Corporation on customer balances.
WHAT ARE THE PROS AND CONS OF
CASH MANAGEMENT ACCOUNTS?
PROS
—Interest rates tend to be higher than rates
at traditional banks. Though some brokerages
don’t offer much interest on their CMAs, others
offer significantly higher interest rates than the
national average of 0.06% for savings accounts.
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.