A cash management account, often abbreviated as CMA, is a relatively broad term that refers to a financial account offered by a non-bank financial company, such as a brokerage, robo-advisor, or financial app. Although the features offered may vary, most CMAs offer some of the same features typically provided by checking or savings accounts.
For example, some cash management accounts offer owners the ability to write checks on the account, use a debit card to withdraw cash from ATMs or pay in stores, and transfer money between accounts at other financial institutions. The best cash management accounts also typically pay interest, although the interest rates paid can vary widely from institution to institution.
Since the companies that offer cash management accounts are not banks, it is important to know that these accounts are offered in partnership with chartered banks. Although you can access your money through the app or website of the brokerage or robo-advisor offering the cash management account, in reality the money is held at a partner bank (or more) . For example, Betterment’s Cash Reserve account uses seven different partner banks, including Citibank and Wells Fargo.
The reason is insurance. Chartered banks are eligible for FDIC insurance up to $250,000 in deposits per person. For high balance cash management accounts, the funds are often split between a few different financial institutions to ensure that all of the client’s money is secure. For example, the Betterment Cash Reserve offers up to $1 million in FDIC insurance per depositor due to the multi-bank strategy. Fidelity offers up to $1.25 million in FDIC-insured cash management balances.
In some (but not all) cases, you must be a client of the brokerage or robo-advisor’s investment account services in order to use its cash management account features. For example, you cannot open a Betterment Cash Reserve account unless you are a client of Betterment’s investment services.