Discover what a cash management account is with Vanguard. Learn its features, benefits, and how it can help you manage your finances more efficiently.
Nicole Townsend, CFA
Nicole Townsend leads Investment Product Strategy in Vanguard Personal Investor, where she conducts investment product research to inform decision-making and strategic action on Personal Investor's product portfolio. In her role, Nicole advocates for the needs and preferences of Vanguard clients as part of the enterprise investment product research process focused on Vanguard's mutual fund and ETF offerings. Prior roles Nicole has held include strategy engagement manager for Vanguard Wealth Management, fixed income specialist in the Portfolio Review Department, as well as a variety of roles held within the Finance division.
Nicole earned a B.A. and a B.S. from the University of Delaware and holds the FINRA Series 7 and 63 licenses. She's a Chartered Financial Analyst® (CFA®) charterholder and a member of the CFA Society of Philadelphia.
What is a cash management account?
A cash management account is an alternative to a traditional bank account that simplifies money management. Its goal is to help keep your money secure while offering a competitive annual percentage yield (APY) and similar features to traditional bank accounts. Typically offered by brokerage firms and investment banks, it can be used to hold cash, invest in securities, and make payments.
How do cash management accounts work?
Cash management accounts allow you to save, spend, and invest all in one place by combining features of checking, savings, and brokerage accounts.
Like checking accounts, cash management accounts generally have routing and account numbers that you can use to pay bills and make mobile check deposits. They also offer FDIC insurance, which would protect your cash, up to applicable limits, if something were to happen to the financial institution.
Similar to investment accounts, cash management accounts feature bank sweep programs that move any uninvested cash in the account to program banks, where it can earn interest. The partnership that cash management accounts have with banks allows them to offer competitive interest rates and keep more of your cash federally insured. Cash management accounts can also generally be linked to a brokerage or investment account with the same provider, offering ways for you to easily access your money.
Rethink the way you save with Vanguard cash solutions
How does a cash management account compare with other account types?
Understanding the sometimes subtle differences between cash management, brokerage, high-yield savings, checking, and traditional savings accounts can help you choose the best place to hold your cash. However, you shouldn't feel pressured to choose between one option or the other—it's common to have savings in multiple account types. The features of cash management accounts in particular make them a great way to supplement other accounts.
Cash management account versus brokerage account
Nonretirement savings can be invested in brokerage accounts. You can use them to invest in mutual funds, exchange-traded funds (ETFs), stocks, bonds, and more, which can help you grow your savings. Like cash management accounts, taxable brokerage accounts can be used to save and provide access to your money with no early withdrawal penalty.
However, there are 2 key differences. One is that the money in cash management accounts is often kept in short-term cash-like investment choices. The second is that cash management accounts can offer features found in checking accounts, like debit cards and checkwriting. They also offer different types of protection for the accounts. Deposits in cash management accounts are covered by FDIC insurance. Money market funds and securities in brokerage accounts are eligible for protection by SIPC. Despite their similarities, a cash management account is not the same as a brokerage account.
Cash management and brokerage accounts can work together to help make transfers between them more efficient. Having both may make it easier for you to transfer your cash savings to purchase investments.
Cash management account versus high-yield savings account
Both high-yield savings accounts and cash management accounts generally offer higher interest rates than traditional savings accounts. The accounts also offer security in the form of FDIC insurance, making them potential options for your savings goals and to use as an emergency fund.
However, high-yield savings accounts are typically offered by banks. While most banks allow unlimited withdrawals, some may impose a limit of six withdrawals per month. By contrast, cash management accounts are usually provided by nonbank financial service providers, like investment companies, and generally don't have withdrawal limits.
Cash management account versus checking account
Some cash management accounts offer many of the same features as checking accounts, including withdrawals for bill pay setup, debit cards, and mobile deposits. Most cash management accounts offer all their services online, while checking accounts at a bank may also provide in-person services.
Cash management account versus savings account
Traditional bank savings accounts and cash management accounts are similar because they both offer FDIC insurance for your savings. However, cash management accounts typically offer more competitive interest rates and more flexibility in terms of taking money from the account. Some banks still limit withdrawals or impose fees if you withdraw too frequently from a savings account, whereas cash management accounts typically don't have withdrawal limits.
Your money could go further
When to consider a cash management account
Cash management accounts are a great option if you'd like to keep your finances simple, since they're a convenient way to manage both investing and savings in one place. You'll benefit from FDIC insurance, which ensures your cash is safe up to the covered amount, and may also benefit from higher interest rates than what banks typically provide.
What to consider when choosing a cash management account
It's important to compare the features and benefits of different cash management accounts before you make your decision. Here are a few key considerations:
1. Accessibility
Cash management accounts may offer other features that can be helpful for managing cash flow—like routing and account numbers or compatibility with vendors like Venmo and PayPal. Since they're offered by brokerage firms and investment banks, you can also easily use the money to invest in securities.
2. FDIC coverage
While cash management accounts are typically low risk, highly liquid, and secure, it's beneficial for the cash in the account to be insured. While only the bank sweep balances are eligible for FDIC coverage, money market funds and any other securities may be eligible for protection by the SIPC. FDIC and SIPC protection limits may vary depending on the financial institution that manages the account. It's best to ask any potential providers about the coverage they offer.
3. Costs and APY
It's also important to consider account fees and the interest you're earning. Costs can eat away at returns, so lower fees can leave you with more money to save and potentially earn even more on. Competitive APYs mean your money can potentially make more earnings than you would with a traditional bank account.
Managing cash flow
When you're coming up with a strategy on how to save, the following steps can help you manage your cash flow:
- Track your spending to understand where your money goes and help you determine ways to save more.
- Establish specific savings goals with timelines to stay motivated and measure progress.
- Set up automated transfers to savings and retirement accounts to ensure consistent financial habits.
- Grow your savings through cash accounts and products that offer competitive yields.
Does Vanguard have a cash management account?
Yes! At Vanguard, we strive to offer both investing and savings strategies that give you the same convenience with better outcomes and benefits. We offer a variety of cash management solutions, including the Vanguard Cash Plus Account. This account features a bank sweep program that offers FDIC insurance1 and a competitive APY2 on your short-term savings. There are no fees3 to open the account and no minimum balance requirements. Other account fees and commissions may apply. You can use the bank sweep as a low-risk place to keep cash for both your savings goals and emergency fund. You'll also get routing and account numbers so you can easily access your money if you need it to pay bills, set up direct deposit with your employer, and more.4