Cash management accounts and high-yield savings accounts are both great options if you are looking to earn high interest on your cash in the short term. Their APYs usually fall within the range of 1.00-2.00%, which is lower than what can you make over the long term in a retirement or investment account, but much higher than the average savings rate that traditional brick-and-mortar banks offer.
While features of cash management accounts differ, it may come down to a question of how easily you can deposit or withdraw your money and whether you want to link a brokerage account. Read on to learn more about the features of cash management and high-yield savings accounts and which one might be right for you.
What Is a Cash Management Account?
A cash management account is a cash account that combines services and features that are similar to checking, savings and/or investment accounts under one product. Cash Management Accounts are typically offered by nonbank financial service providers, and some of these accounts are able to provide high interest rates and reasonable or no fees thanks to the low overhead of online-only services. While providers vary in what they offer, here are some of the typical features, benefits and drawbacks of cash management accounts:
- PROS
- Fewer accounts to manage.
- Higher interest rates than brick-and-mortar banks.
- Benefits similar to checking and savings accounts.
- FDIC insurance on your account, often provided through third-party bank partners.
- CONS
- You could miss out on higher-interest investments, like index funds.
- Savings accounts at online banks might offer higher interest rates.
- Customer service might not be face-to-face.’
What Is a High Yield Savings Account?
High-yield savings accounts are savings accounts that offer interest rates that are usually much higher than traditional savings accounts. The best high-yield savings accounts are usually offered by online banks because online banks don’t have the business overhead that brick-and-mortar banks do, and they’re able to pass on the savings to their customers in the form of high APY.
High-yield savings accounts have the convenience, familiarity and benefits typical of banks, so they can be a good place to park cash and let it earn interest without frequent withdrawals.
What Are The Similarities and Differences?
Similarities
- High interest rates.
- Good short- to medium-term parking for savings, like an emergency fund.
- Funds are federally insured.
- Have similar things to consider before opening an account, such as fees, minimum balances, ATM access and whether you can link accounts.
- Funds are subject to fluctuating interest rates that are dependent on the federal funds rate (the rate at which banks can lend money to each other).
Differences
- Cash management accounts are typically provided by nonbank financial service providers (like robo-advisors or investment firms) while high-yield savings accounts are provided by banks.
- High-yield savings accounts have a federally regulated limit on the number of withdrawals a customer can make; CMAs aren’t restricted by number of withdrawals.
- Federal insurance is provided using different methods.
- CMAs can often be linked to a brokerage or investment account with the same provider.
- Check-writing is available with some CMAs.
Which Type of Account is Best For Me?
With both CMAs and high-yield savings you’ll likely get high interest rates on your cash, so when it comes to choosing what account you want, consider the following.
- Research what kind of access you’ll have to your funds.
- Savings accounts and cash management accounts can have very different means of depositing and withdrawing money. While savings accounts tend to have pretty standard access via branches, ATMs and online banking, CMAs can be trickier.
- Keep in mind that savings accounts have withdrawal limits.
- The Federal Reserve Board puts a limit of six transactions per month on transfers and withdrawals from bank savings accounts. CMAs, on the other hand, aren’t bank accounts, so customers don’t have the same restrictions on how many transactions they can make per month.
- Think about what kind of extra features you want with your account.
- Debit cards and check-writing aren’t always standard with cash management accounts, although they’re very common options for bank checking accounts, which are typically available to link to savings accounts.
- Some cash management accounts offer bonus perks as well.
- Think about whether you want to link other accounts.
Some cash management account providers allow you to link brokerage or investment accounts at the same firm, which can make it easier to transfer money back and forth.
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Author’s Verdict
Cash management accounts and high-yield savings accounts are both great options that will earn you high interest on your cash. Both have advantages and disadvantages so definitely see which account suits you better.
In addition, we have a list of bank promotions to get some extra cash in your pockets today. You may also want to check out savings accounts if you want to get started on saving up money.
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| Chase College CheckingSM | $100 Cash | Review |
| J.P. Morgan Self-Directed Investing | Up to $700 Cash | Review |
| Chase Secure BankingSM | $100 Cash | Review |
| SoFi Checking and Savings Account | $325 Cash | Review |
| Huntington Bank Unlimited Plus Business Checking | $1,000 Cash | Review |
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| Huntington Bank Business Checking 100 | $100 Cash | Review |
| Fifth Third Bank Checking | $400 Cash | Review |
| Axos Basic Business Checking | $400 Cash | Review |
| Axos Business Interest Checking | $400 Cash | Review |
| Axos Bank Business Premium Savings | $375 Cash | Review |
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