Should You Bank With Your Brokerage?

Nov 20, 2023 By Triston Martin

If you've been a client of the brokerage industry in the past, you may have noticed that the brokerage has a product known as an account for cash management. These accounts are like a checking or savings account and usually offer attractive interest rates and debit cards, among other money management options. However, they aren't all the time standard.


The cash management account often known as CMAs, provide a different option to the traditional savings and checking accounts. These accounts allow customers to organize their money, pay bills, and earn interest. Most importantly, CMAs let customers bank and invest without switching between multiple accounts and applications. CMAs can be found in various accounts based on the institution but usually comprise a checkbook, a debit card, or both. CMAs are popular for their low to no charges on their bank services. They earn money through the cost of retirement and investment accounts and additional financial planning services.



Cash Management Accounts vs Accounts of Banks


One of the primary distinctions between the CMA and the bank account is the fact that CMAs are provided from nonbank, which doesn't have an official charter for banks. In most cases, this means that CMAs are unable to offer their clients federal protection for their accounts, but some brokerages do partner with chartered banks to transfer customers' money into banks behind the scenes. They can then offer insurance through Federal Deposit Insurance Corporation. Federal Deposit Insurance Corporation on the balances of customers.


· Working


Cash management accounts help keep your money secure and earn high-yielding interest. When you make money into a CMAs account, it is held in the banks that are part of your financial institution's partnership. The deposits are often divided among several partner banks. They provide many of the same features that traditional bank accounts do. Account-holders can deposit funds and withdraw money from their accounts whenever necessary via electronic transfers and debit cards, direct deposits, and checks. Certain cash management accounts incorporate the advantages of a savings and checking account, while others provide both kinds of accounts. Both types of accounts allow customers access to their banking routines and interest-earning options.


· Advantages


Account ownership is simplified. A CMA will simplify your finances by allowing you to perform purchases, accrue interest, and occasionally credit lines that are linked to your investment security without the necessity of transferring funds between various accounts.


The interest rates are above average. Some cash management accounts come with more annual percentage yields than what brick-and-mortar banks typically provide. The Betterment Cash Reserve, a cash-management account, comes with an 0.10 percent APY, while most traditional banks offer 0.01 percent.


Alternatives to savings and checking accounts. Cash management accounts typically have mobile check deposits and check writing Federal Deposit Insurance Corp. insurance via the third party banks (sometimes even more than the typical coverage), Bill payments, money transfers, goal-setting programs for overdrafts, and much more.



· Cons


Rates of interest have dropped. The financial sector is in a low rate environment, and therefore, interest rates on deposits are at a low level currently. Several CMAs that were launched in recent years offered notably high-interest rates initially, but then they fell dramatically by mid-2020 following the outbreak of COVID-19, an epidemic.


· Things To Be Aware Of


You might not get in-person customer service. As with online banks, nonbank financial service companies that provide CMAs typically offer remote customer service to operate with fewer costs and pass those savings to their clients in the form of higher rates of interest. Although technology makes it easier to access online support, online cash accounts may be difficult for those who prefer face-to-face interactions. Credit unions, banks, or other financial institutions could still have higher interest rates. For instance, the Fidelity Cash Management Account, for instance, has a 0.01 percent annual percentage yield.


· Easier To Invest?


When investing, timing is crucial. For example, you could miss one or two days of your money being in the market; for instance, the time required to transfer money from a bank account to your investment account could mean you're missing out on gains in the market. If you have all your accounts in one location, it allows you to take advantage of the crucial time in the market and gain more money from your money.


Another major practical benefit to keeping an account of CMA for your company. There's less work to manage when you keep your cash account and your investment accounts in the same location. As with every financial product, buyers must conduct their own study to determine if CMA is a good fit for their personal needs and if benefits work for their saving, spending, and investing practices.

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