Many people today are worried about their finances and savings.
Fortunately, consumers have a lot of choices when it comes to how they save their money.
An often under-discussed option is the cash management account.
Cash management accounts can be a great alternative to other more traditional banking options including savings accounts.
This article will walk you through what cash management accounts offer and how they work.
Well also discuss the pros and cons of cash management accounts and alternatives to utilizing a cash management account.
What Is a Cash Management Account and How Does It Work?
To start, lets look at what a cash management account is.
Understandingfinancial formulas like cash flowand integrating that into cash management accounts can benefit your financial health.
What Is a Cash Management Account?
A cash management account, often called a CMA, operates like a combination checking and savings account.
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How Do Cash Management Accounts Work?
Typically, a CMA will come with a debit card, paper checks, and digital banking access.
Most cash management accounts offer competitive interest rates too.
Cash management accounts then utilize AI-enabled trading algorithms to invest your deposits into partner banks.
This process enables CMAs to offer greater levels of FDIC protection than traditional checking and savings accounts.
Remember, the FDIC only insures $250,000 per depositor for each account category at a given banking institution.
One of the main advantages of a CMA is that it can simplify your banking.
It allows you to invest money, earn interest at a high rate, and utilize a debit card.
By having everything in one place, managing your money will be easier.
Think of a cash management account as a convenient way to put your cash into investments.
Unfortunately, interest rates on deposit accounts are at all-time lows.
Many cash management accounts are offered by digital firms that specialize in offering online investment services.
Robinhood and Fidelity are some of the primary providers of CMAs.
Signing up for an account is a breeze using their digital services.
Also, because yourdeposits are FDIC insured, you dont have to worry about losing your money.
CMAs usually feature debit cards, ATM withdrawals, online banking, and even paper check services.
Many CMAs allow you to connect your account to investment accounts automatically.
It helps simplify your finances because youll have one less place to keep track of your money.
Importantly, cash management accounts traditionally offer ATM fee reimbursement.
This can be great if you enjoy having cash on hand.
Many CMAs also are part of large ATM networks, so there may be no fees to worry about.
CMA pros arent just limited to the above list; many accounts can have additional benefits.
In that case, youll have an extra layer of protection when banking with a CMA.
Other potential perks include freecredit monitoringand identity protection.
With so many data breaches occurring today, identity protection is essential.
Some CMAs offer cash bonuses and waive foreign transaction fees.
Unfortunately, they can have some drawbacks too.
Here are the cons of cash management accounts.
The biggest issue many people face with CMAs is that they can have monthly fees.
And although CMAs offer competitive interest rates, they arent always the highest available.
Its possible that keeping your cash in a CMA may cost you money in the long run.
If youre worried about accounting mishaps, remember that your deposits are insured.
Fortunately,online bankingand electronic check deposits have all but eliminated the need to go to the bank.
Sometimes, these minimums are in the tens of thousands of dollars prohibitively high for many Americans.
Not all CMAs have no asset minimums, though, depending on the provider.
CMAs may also contain other special conditions, like minimum balances, transfer limits, and other terms.
Be sure to check with a representative about all the details of your CMA.
Online Checking
One of the best alternatives to utilizing a CMA is finding anonline checking accountprovider.
Ally Bank is one of the most common providers of online banking.
When picking the account, consider what features it offers compared to your CMA.
Cashback rewards are common among credit card companies and checking services but less common for CMAs.
Online checking can also offer lower interest rates than CMAs.
Investment Accounts
Having a dedicated investment account is another option instead of a cash management account.
Understanding these tools and becoming educated about them is a great way to ensure your long-term financial health.
New York contributor Kiara Taylor specializes in financial literacy and financial technology subjects.
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