If you prefer online banking over a brick-and-mortar bank experience, there are many options to explore. For example, you can choose to open a cash management account with a fintech company (which also may be referred to as a neobank).
To help you see if cash management accounts might be a good choice for you, we’ll explain how cash management accounts work, how to determine if they’re a good fit, and where to find them.
What is a cash management account?
Cash management accounts, also commonly called cash accounts, are a type of account offered by online-only institutions that aren’t technically banks, like investing platforms or fintech companies.
Cash accounts serve as an alternative option to traditional checking and savings accounts. For example, you can use cash accounts to store your savings and manage money all in one place.
“It’s a hybrid checking and savings that can give you the benefits of typically higher rates as well as more flexibility with your money that you probably aren’t going to get with the traditional bank account,” explains Tony Molina, CPA and product evangelist at Wealthfront.
One of the most notable distinctions between cash management accounts and traditional bank accounts is the number of transfers you can make. Cash accounts permit unlimited transactions from a single account while some traditional bank accounts have transfer limits.
The federal rule Regulation D states there are transfer limits for savings accounts. The Board of Governors of the Federal Reserve has recently amended Regulation D, so banks may choose to suspend the monthly transfer limit so customers can make unlimited monthly transactions, or they could enforce a six-per-month limit.
If you exceed the transfer limit on a savings account at a bank that enforces a monthly transfer limit, you’ll usually have to pay a fee for additional transfers or withdrawals.
How cash management accounts work
Cash management accounts are multifunctional accounts that combine checking and savings account features. Here are a couple of the most common traits shared by cash management accounts:
What to look for in a cash management account
- Interest rates: Cash management accounts generally offer high interest rates competitive with high-yield savings and high-yield checking accounts. You’ll usually earn a much higher interest rate than the average savings account, which only pays 0.21% APY, according to the FDIC.
- Fees: Cash management accounts generally do not charge monthly service fees, out-of-network ATM fees, foreign transaction fees, or overdraft fees.
- Minimum opening deposits: Cash management accounts often have low minimum opening deposits. For example, the Robinhood Cash Management Account has a $0 initial deposit.
- Access to your account: Cash accounts often include debit cards, as a checking account does. You also won’t have to worry about transfer limits because many cash management offers unlimited transactions.
- Physical locations: Fintech companies are primarily online-only, so you won’t be able to visit any branches to conduct transactions. You’ll have to be comfortable banking online or through a mobile app.
- Depositing money: Some accounts will allow you to deposit cash at select retailers, but you may have to pay a fee for each transaction.
- FDIC insurance: Fintech companies partner with banks that provide FDIC insurance for cash management accounts. Banks can insure up to $250,000 in individual accounts or $500,000 for joint accounts. Some fintech companies are backed by multiple banks, so your cash management account may be FDIC insured for $1 million or more. If you would like to see the list of partner banks that provide FDIC insurance for a particular account, you may find the information on the fintech company’s website at the bottom of the main page or in an account agreement.
Is a cash management account worth it?
A cash account might be a strong choice if you already have an account with a specific brokerage or investment firm that offers cash management accounts. It also may be appealing if you’re looking for a high interest rate and are comfortable with online banking.
Cash accounts may not be ideal if you frequently make large cash deposits. Since there aren’t branches, you usually have to deposit cash at ATMs or select retailers where you may need to pay a fee. In some cases, you’ll only have the option to link an external bank account and make deposits through ACH transfers.
