Banking » Guides » Checking Account vs Cash Management Apps: How They Compare?
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Checking Account vs Cash Management Apps: How They Compare?

A checking account and a cash management account allow you to deposit and withdraw money, but there are key differences between them
Author: Baruch Mann (Silvermann)
Baruch Mann (Silvermann)

Writer, Contributor

Experience

Baruch Silvermann is a financial expert, experienced analyst, and founder of The Smart Investor.  Silvermann has contributed to Yahoo Finance and cited as an authoritative source in financial outlets like Forbes, Business Insider, CNBC Select, CNET, Bankrate, Fox Business, The Street, and more.
Interest Rates Last Update: April 15, 2024
The banking product interest rates, including savings, CDs, and money market, are accurate as of this date.
Author: Baruch Mann (Silvermann)
Baruch Mann (Silvermann)

Writer, Contributor

Experience

Baruch Silvermann is a financial expert, experienced analyst, and founder of The Smart Investor.  Silvermann has contributed to Yahoo Finance and cited as an authoritative source in financial outlets like Forbes, Business Insider, CNBC Select, CNET, Bankrate, Fox Business, The Street, and more.
Interest Rates Last Update: April 15, 2024

The banking product interest rates, including savings, CDs, and money market, are accurate as of this date.

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A checking account and a cash management account (CMA) are both types of bank accounts that allow you to deposit and withdraw money. 

Here we will review each of these options, what are the pros and cons of them and what are the key differences.

What Is A Cash Management Account?

A cash management account (or app) is a versatile financial product that blends checking, savings, and investment functionalities within a single non-bank account. These accounts are commonly provided by brokerage firms, fintech companies, and robo-advisors, offering a seamless approach to managing money.

To get started, individuals can open a cash management account with their chosen account. Afterward, they can deposit funds into the account, giving them the freedom to utilize it for various purposes, including making payments, transferring money, and accessing cash whenever needed.

One significant advantage of cash management accounts is the potential for higher interest rates compared to traditional savings accounts, making it an attractive option for earning returns on deposited funds. Additionally, CMAs often provide access to investment services like research and trading, enabling users to explore investment opportunities alongside their other financial activities.

Overall, a cash management account serves as an efficient and flexible financial tool, offering a seamless integration of banking and investment services for enhanced money management.

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Convenience
Not FDIC insured
High Interest
Not A Bank
Access to Investment Services
Limited Financial Products
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What Is A Checking Account?

A checking account offered by banks and designed for everyday financial transactions. It allows account holders to deposit and withdraw money easily, either through branches, ATMs, online banking, or mobile apps.

Checking accounts are typically used for short-term needs, such as paying bills, making purchases, and managing day-to-day expenses.

These accounts usually come with features like a debit card, check-writing privileges, and electronic fund transfer capabilities. While checking accounts generally don't earn as much interest as cash management apps, they provide greater liquidity and accessibility to funds.

Account holders should maintain a sufficient balance to avoid overdraft fees and may also be subject to monthly maintenance charges, though many banks offer fee-free checking accounts.

Pros
Cons
FDIC insured
Fees
Broad Options Of Financial Products
Low Interest
Bank Reputation
Meet Conditions To Open Account

Checking vs Cash Management Accounts: Key Differences

Checking accounts and cash management accounts (CMAs) are both financial products that help manage funds, but they have some key differences:

  • Purpose and Target Audience: Checking accounts are primarily designed for everyday transactions, bill payments, and managing day-to-day expenses. CMAs, on the other hand, cater to those seeking a more comprehensive solution that combines the benefits of a checking account with higher interest rates and investment opportunities for excess cash.
  • Fees and Requirements: Checking accounts might come with fees and minimum balance requirements. Some cash management accounts may also have fees, but many CMAs offer fee-free accounts or lower fees compared to traditional checking accounts.
  • Interest Rates: Checking accounts typically offer minimal or no interest on the deposited funds. On the other hand, cash management accounts often provide higher interest rates on cash balances, making them more attractive for earning some returns on idle money.
  • Investment Options: Cash management accounts typically offer investment options, such as money market funds or ETFs, allowing account holders to potentially earn higher returns on their cash balances. Checking accounts do not have such investment features.
  • Transaction Limitations: Both checking and cash management accounts offer easy access to funds, but checking accounts may have certain transaction limitations, such as a limited number of free ATM withdrawals or transfers per month. Cash management accounts may provide more flexibility in this regard.
  • FDIC insurance: Checking accounts are FDIC insured, which means that your money is protected up to $250,000 in the event of a bank failure. Cash management accounts are not FDIC insured.
Checking Account vs Cash Management Apps
Cash management accounts typically offer investment options. (Photo by THASSANEE KHAENGRIT/Shutterstock)

How To Decide Between Them?

Ultimately, the best type of account for you will depend on your individual needs and financial situation. If you are looking for a basic account for everyday transactions, a checking account is a good option, especially when there are many types of checking accounts available. 

If you want a more versatile account that offers higher interest rates and more features, a CMA may be a better fit.

Here are some factors to consider when deciding which type of account is right for you:

  • Your financial goals
  • Your spending habits
  • Fees
  • Risk tolerance

When A Checking Account May Be A Good Idea?

A Checking Account may be better in the following cases:

  • You Manage A Lot Of Money: A bank may be a better option if you have a large sum of money to deposit. Keep in mind you can deposit money in CDs or savings accounts, that offer quite similar rates to cash management apps.
  • Everyday Transactions: If you primarily need an account for day-to-day transactions, bill payments, and managing daily expenses, a checking account is a simple and practical choice.

  • FDIC Insurance: If the safety and security of your funds are a top priority, a checking account with a reputable bank provides FDIC insurance up to the legal limit (currently $250,000 per depositor). Our survey shows that safety is one of the most important features for customers.

  • Convenience of Basic Features: Checking accounts come with standard features such as a debit card, check-writing capabilities, and easy access to ATMs for cash withdrawals. They are more straight forward and you also have an access to customer support.

When A Cash Management Account May Be A Good Idea?

A Cash Management Account may be better in the following cases:

  • You Are Starting Your Financial Journey: If you are just starting your financial journey, a cash management app can help you understand some interesting aspects of finance such as savings, money management and even investing.
  • Higher Interest Rates: If you want to earn more on your idle cash, a CMA often offers higher interest rates compared to traditional checking accounts, allowing your money to work harder for you. For example, Wealthfront offers 4.55% APY on its cash account.
  • Investment Opportunities: If you have excess funds beyond what you need for immediate expenses, a CMA can provide investment options like money market funds or ETFs, potentially increasing your returns.
  • Comfort with Non-FDIC Protection: If you are comfortable with the level of protection offered by the CMA provider (which may differ from FDIC insurance), this may not be a significant concern.

FAQs

Cash management accounts may not be FDIC-insured, but they might be backed by partner banks or financial institutions with their insurance or protections. It's essential to review the account details to understand the level of protection.

Some CMAs may have fees, but many providers offer fee-free accounts or lower fees compared to traditional checking accounts.

Yes, CMAs typically offer easy access to funds through ATMs, online banking, or mobile apps.

Checking accounts are not ideal for long-term savings due to their low or no interest rates; consider a savings account or other investment options for long-term savings.

Baruch Mann (Silvermann)

Baruch Mann (Silvermann)

Baruch Silvermann is a financial expert, experienced analyst, and founder of The Smart Investor.  Silvermann has contributed to Yahoo Finance and cited as an authoritative source in financial outlets like Forbes, Business Insider, CNBC Select, CNET, Bankrate, Fox Business, The Street, and more.
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