What Is a Cash Management Account? All You Need To Know

A cash management account, or CMA, is a personal or business cash account that combines the services of checking, savings, and investment accounts. It’s not held by a bank but rather by a brokerage, investment firm, fintech, robo advisor, or nonbank financial institution (NBFI).

It complements an investment account and offers high-interest yields (like a savings account) and deposits, withdrawals, debit card use, and bill pay (like a checking account). The main difference between a cash management account and other accounts is the US federal tax liability. Depending on the source of the funds, withdrawals, interest earned, and dividends may be subject to federal taxes.

How a cash management account works

It is designed to be a holding or storage hub for business working capital or personal funds. It allows your money to remain accessible while still having the options of earning interest along with getting the security of FDIC and SIPC coverage. Many account holders and business owners use it to build up savings or emergency funds, while others treat it as a regular deposit account.

FDIC and SIPC rules, limits, and security

The FDIC provides coverage to protect deposited funds up to $250,000 at participating institutions. This limit can be increased by the following methods:

• Opening accounts at multiple banks that are members of the FDIC
• Adding a joint owner to an individual account
• Creating a payable on death account; maximum coverage is $1,250,000 for up to five beneficiaries
• Opening an account at a fintech that partners with multiple banks and can make deposits at additional financial institutions on your behalf
• Partnering with a financial institution with access to the IntraFi network

Meanwhile, the SIPC protects investors from failed brokerage firms for amounts up to $250,000 for cash and up to $500,000 for securities. With SIPC, each account type receives separate coverage (instead of combined totals like FDIC coverage). Here are the account types covered:

• Individual accounts
• Joint accounts
• Corporate accounts
• Trust accounts
• IRAs
  
  
  
  
  Individual Retirement Accounts
  
• Roth IRAs
• Executor held accounts
• Guardian held accounts

Multiple accounts of the same type are insured up to $500,000 at the same brokerage, even if the deposit amount exceeds $500,000. To ensure all funds are covered, some funds would need to be moved to a different brokerage or a different account type.

Fees influencing cash management account pricing

Some business bank account fees commonly charged for a cash management account influence the account’s pricing. These include the following:

• Monthly maintenance fees
• Account management fees
• Overdraft fees
• Wire fees
• ACH fees
• Bill pay access fees
• Foreign transaction fees
• Advisory investing fees
• ATM fees
• Transaction limit fees

How to open a cash management account

Since there are two types of cash management accounts, personal and business, you will need to follow the steps based on the type that best fits your needs. Personal accounts will only need your personal information, whereas business accounts will need to go through the following process:

• Step 1: Select a fintech, brokerage, or investment firm that offers a cash management account.
• Step 2: Once you pick a provider, access its website to start the process of opening the account.
• Step 3: Fill out all the fields with your business information, including
  • Full legal business name
  • Physical address of the business
  • Phone number of the business
  • EIN
    
    
    
    
    Employee Identification Number
    
  • Business type
  • Beneficial ownership of the business
    
    
    
    
    Any member with 25% or more ownership
    
  • Personal information for each beneficial owner.
    • Full legal name
    • SSN
      
      
      
      
      Social Security Number
      
    • Physical address
    • Phone number
• Step 4: Select the type of account that works best for your business.
• Step 5: Review the terms and conditions, ensuring you understand minimum balance requirements, withdrawal limits, fees, and interest-earning capabilities.
• Step 6: Fund your account to activate it.
• Step 7: Order a debit card.
• Step 8: Set up online banking; link any other accounts you need to see — like IRAs, retirement accounts, stocks, bonds, mutual funds, and investments.
• Step 9: Determine if multiple accounts of different types need to be opened to cover all funds following the FDIC and SIPC guidelines.
• Step 10: Request additional features such as automatic sweeps or investment transfers.

Popular business cash management account providers

If you are looking for a business cash management account, consider the following:

• Rho
  
  
  
  
  Rho is a fintech company, not a bank or an FDIC-insured depository institution. Checking account and card services are provided by Webster Bank N.A., member FDIC. Savings account services are provided by American Deposit Management Co. and its partner banks. International and foreign currency payments services are provided by Wise US Inc.
  
  is a business platform built for startups and growth-stage businesses, though it also serves world-class enterprises. It offers expense management, A/P automation, and accounting integrations.
• Ramp
  
  
  
  
  Ramp is a fintech company, not an FDIC-insured depository institution. Banking services are provided by First Internet Bank (FIB), member FDIC. Subject to the terms of the applicable ICS Deposit Placement Agreement, FIB will place deposits at FDIC-insured institutions through IntraFi’s ICS service.
  
  serves businesses of all sizes. With the Ramp Treasury account, you have access to the financial operations platform and built-in cash management tools to make automatic investments and optimize cash flow.

If a personal cash management account is what you need, look into the following:

• Vanguard
  
  
  
  
  Brokerage accounts hold investments such as stocks, bonds, and mutual funds, which aren’t insured by the FDIC. Vanguard accounts are protected by SIPC insurance, which covers up to $500,000 in securities and up to $250,000 in cash if the firm fails. This coverage is automatic and doesn’t require any action on the part of Vanguard clients.
  
  offers the Cash Plus account, a savings account alternative that allows you to keep short-term cash and long-term investments in one place.
• Betterment
  
  
  
  
  Betterment LLC is not a bank. Client funds in Cash Reserve are deposited into one or more FDIC-insured banks (“Program Banks”), where they earn variable interest and are eligible for FDIC insurance.
  
  has a Cash Reserve account that comes with a $0 monthly maintenance fee and up to $2 million in FDIC coverage through partner banks. It also has unlimited withdrawals and no minimum balance.

Frequently asked questions (FAQs)

Are cash management accounts held at banks?

No. Cash management accounts are generally held by brokers, investment firms, fintechs. or nonbank financial institutions. Banks may become involved in a fintech partnership to extend the FDIC insurance coverage of cash management accounts.

Do you have to pay taxes on a cash management account?

It depends on the source of the funds. If you made a withdrawal from a retirement account, investment account, or IRA and transferred the funds to your cash management account, you will likely owe taxes on the disbursement. If the funds are from a source that’s already been taxed, such as your regular paycheck, taxes may not apply. It’s best to reach out to your tax professional prior to making withdrawals so that you are aware of potential tax liability.

Can I take money out of my cash management account?

Yes. Cash management accounts are generally held at investment firms, brokerages, and fintechs so the withdrawals are electronic. You can make a cash withdrawal using an ATM, make a store purchase using a debit card, write a check, or use bill pay to send funds to a vendor.