What is a cash management account, and how does it work?

Article excerpt

Cash management accounts bundle checking, savings, and investment features into a single account, typically offered by online banks and brokerages rather than traditional banks. These accounts sweep idle cash into money market funds or short-term securities to generate higher yields than standard savings accounts, while maintaining access to funds through debit cards and transfers. The accounts appeal to people seeking better returns on cash reserves without the complexity of juggling multiple accounts. However, they lack FDIC insurance on amounts exceeding $250,000 per institution, and fees or minimum balances vary widely across providers. Experts note they work best for financially savvy customers who understand the trade-offs between yield potential and liquidity constraints.