Looking to earn more interest on your savings? Most people in your position use high-yield savings accounts (HYSAs) to maximize their savings returns. But there’s another, less traditional option you may not know about for earning money: cash management accounts (CMAs).
HYSAs and CMAs both offer higher interest rates than traditional savings accounts, but they’re useful for different purposes.
Because of their competitive rates and FDIC insurance, HYSAs are the best choice for most people’s emergency savings. However, if you want an account that lets you both save and invest, a CMA could be what you want. Plus, some CMAs have FDIC insurance coverage as high as $8 million per individual.
What is a high-yield savings account?
A high-yield savings account (HYSA) is an account that has all the features of a traditional savings account, but it pays a higher interest rate. The best rates on HYSAs are currently around 4% APY, while the national average rate on savings accounts is just 0.38%.
These accounts are also built to encourage savings, so they don’t come with features that make it easy to withdraw money, such as debit cards or checks. Instead, they reward you with high rates for keeping your money right where it is.
Here are a few common features associated with HYSAs:
What is a cash management account?
A cash management account (CMA) is a type of financial account that combines the features of a checking, savings, and investment account. CMAs are typically offered through investment firms and brokerages rather than traditional banks and credit unions.
With cash management accounts, you usually get a debit card and overdraft protection, and you can set up automatic deposits. But what makes them unique is that you can also choose one of the two following options for your money:
Invest: You can invest your cash in assets such as mutual funds and stocks in order to earn returns on your money. The downside, however, is that there’s always a risk of losing the money you invest.
Cash: Keep your money in cash to get FDIC-insurance and avoid losing your savings. The downside is you’ll usually earn less interest than you would with an HYSA.
One of the main differences between a CMA and a traditional bank account is the insurance coverage. Because of their “bank sweep” feature that spreads your money across multiple insured banks, you can get far more FDIC insurance coverage with a CMA than you would from a traditional bank account. For example, Betterment and Fidelity’s cash management accounts are both insured up to $4 million and Wealthfront insures up to $8 million.
However, similar to online bank accounts, CMA services are usually all online. That means you can’t visit a physical branch or ATM to manage your money, and there may not be live agents available to offer customer support.
High-yield savings account vs. cash management account: Key differences
The main difference between HYSAs and CMAs is that HYSAs generally offer higher interest rates than CMAs, but they don’t give you the option to invest your deposits. Here’s a closer look at what makes them different from one-another.
HYSA | CMA | |
|---|---|---|
Typical interest rates | 3.5%-4%+ | 3%-4% |
Who offers them? |
| |
Direct deposit | Yes | Yes |
Debit card | No | Yes |
Checks | No | Yes |
Option to invest | No | Yes |
Interest is taxable | Yes | Yes |
Unlimited withdrawals | Varies (often max of 6 per month) | Yes |
Monthly fees | Not typical – varies by account | Varies by account |
Physical branches and ATMs | Not common | Not common |
FDIC insurance limit | $250,000 | $4M – $8 M |
Which is better: HYSAs or CMAs?
For your savings, a HYSA is almost always a better choice than a CMA. An HYSA is specifically designed to help you grow your savings while keeping your money safe and accessible. These accounts often offer the highest APYs available on FDIC-insured deposits and have fewer moving parts than a cash management account.
That said, a cash management account (CMA) can be a better fit if you want your savings account to double as an everyday money hub.
If you’re still not sure which option is best, here are a few questions to ask yourself:
Am I saving for a specific goal? If you’re saving money for an emergency fund or for a planned expense, keep the funds in a HYSA where you won’t risk losing your principal and can earn the highest interest rate possible.
Do I already invest through a brokerage? If you already use a brokerage account and regularly move money into investments, a CMA can simplify your financial life. If you think you would benefit from keeping your cash and investments on the same platform, a CMA may provide a smoother experience.
Do I have more than $250,000 to deposit? For deposits over $250,000, choosing the cash option on a CMA is a convenient way to get all of your money insured. You can still choose a HYSA instead, but you’ll have to open and manage multiple accounts to get the level of insurance coverage you need.
Do I need this money for day-to-day expenses? If you need the money for bills and other day-to-day costs, you may not want to use an HYSA or CMA. Often, the best choice for managing everyday transactions is a checking account.
