A cash management account is an alternative type of account to standard checking or savings. This type of account is often offered by brokerages or robo advisors rather than traditional banks. Cash management accounts are ideal for clients with large cash holdings, because they provide easy access to funds while keeping the money safe. Additionally, these accounts have the benefit of earning interest.
What is a Cash Management Account?
Cash management accounts have similarities to both savings accounts and checking accounts. Much like a savings account, this is an account where you can hold large amounts of funds to keep your money safe and earn interest. On the other hand, they are similar to checking accounts because the money in your account is easy to access and has fewer withdrawal restrictions.
How do Cash Management Accounts Work?
Typically when you deposit money in a cash management account, the money is distributed amongst one or more banks. When money is withdrawn from your account, there is a custodian who directs which accounts the funds are drawn from. Similarly, when money is deposited the custodian determines where the money should be placed.
Cash Management on Webull (coming soon)
Webull offers a cash management solution through your trading account. This means you do not need to open a new account for cash management. Webull is offering a starting annual percentage yield or APY of 4.1%, which is higher than the national average offered by banks. The APY from accounts opened with banks is generally below 4%. Webull currently only supports generating interest in cash accounts. In addition, there are no fees required to open or maintain your account.
Is a Cash Management Account Right for You?
Before opening any new financial account or enrolling in a new feature, it is important to consider if the account type or the feature is right for you. Carefully weigh the various pros and cons before making any decisions.
Cash Management Pros:
• Cash management accounts typically have higher interest rates than traditional checking and savings accounts that can be opened with a bank.
• Even if a bank does offer higher interest rates, this account type also is more flexible, like a checking account.
• Accounts provided by brokerage firms allow you to invest using the money in your cash management account, making it easy to manage all of your financial needs in one place.
Cash Management Cons:
• To combat inflation devaluing your savings, it is important to compare rates to maximize your earnings. Savings accounts may have better rates in some circumstances, or using a CD may have less risk.
• Many checking accounts have bill paying features, which are not offered with Webull's cash management account, so it is not a perfectly suitable replacement for a checking account.
• Webull's cash management accounts are only found online, which may not be preferable if you prefer to bank in person.
• Cash management accounts may not be necessary based on how much money you are depositing. This account type is ideal if you have large amounts of money you want to deposit to keep safe and earn interest on.
In short, consider what you want from an account and if a cash management account aligns with your needs. This may be a good account for you if you want to earn interest on idle cash; if you prefer to bank online, don't need to use this account for paying bills or transferring money, and you want to protect your cash while retaining the flexibility to access it for investing.