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Cash Management Accounts vs. Brokerage Accounts: How They Compare
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Chanelle Bessette is a personal finance writer at NerdWallet covering banking. She previously worked at Fortune, Forbes and the Reno Gazette-Journal. Her expertise has appeared in The New York Times, Vox and Apartment Therapy.
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If you're interested in the stock market, chances are you've heard of brokerages like Wealthfront, SoFi Money and Robinhood. And over the past year or two, more of these firms have begun offering cash management accounts as well as investment accounts.
So what's the difference between the two types of accounts? It lies in whether you’re looking to spend and save or whether you’re looking to invest. Even though cash management and brokerage accounts are both offered by brokerages, their functions are very different.
CMAs — which behave similarly to bank accounts — allow customers to park their money and earn a set interest rate, often with the ability to make purchases with a debit card. Brokerage accounts help customers invest in assets like stocks, bonds and mutual funds, which can earn investment income.
Here's more on the similarities and differences between CMAs and brokerage accounts.
What’s the difference between cash management accounts and brokerage accounts?
Similarities
Differences
Both types of accounts are offered by brokerages.
They both have the potential to earn returns on cash.
These two kinds of accounts can be linked to each other under the same brokerage.
Earnings — whether interest or investment income — come from different places. Brokerage accounts earn income from market performance, and CMA customers earn interest from their CMA provider.
Earnings are potentially much higher for brokerage accounts over time, but can lose value with poor market performance.
CMAs have set interest rates while brokerage earnings are variable depending how your investments are performing.
Insurance coverage comes from different sources. SIPC insurance covers brokerage firm failure or theft, and CMAs receive FDIC insurance when funds are swept to partner banks behind the scenes when a customer makes a deposit.
Money in a CMA can usually be used to pay bills and make purchases, sometimes with use of a debit card or check writing; money in a brokerage account is strictly for buying, trading and selling stocks, bonds, funds and other securities.
Cash management account definition
A cash management account is a cash account that’s offered by nonbank financial service providers and helps customers spend and save their uninvested money. These accounts are often provided by brokerage and investment firms as a way to complement investment accounts.
4.00%SoFi members with Direct Deposit or $5,000 or more in Qualifying Deposits during the 30-Day Evaluation Period can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. Members without either Direct Deposit or Qualifying Deposits, during the 30-Day Evaluation Period will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Only SoFi members with direct deposit are eligible for other SoFi Plus benefits. Interest rates are variable and subject to change at any time. These rates are current as of 12/3/24. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.
4.75%*Current promotional rate; annual percentage yield (variable) is 4.25% as of 11/8/24, plus a .50% boost available as a special offer with qualifying deposit. $10 to start. Terms apply; if the base APY increases or decreases, you’ll get the .50% boost on the updated rate. Cash Reserve is only available to clients of Betterment LLC, which is not a bank; cash transfers to program banks (www.betterment.com/cash-portfolio) conducted through clients’ brokerage accounts at Betterment Securities. Subject to certain conditions.
Min. balance for APY
$0
CDs (certificates of deposit) are a type of savings account with a fixed rate and term, and usually have higher interest rates than regular savings accounts.
CDs (certificates of deposit) are a type of savings account with a fixed rate and term, and usually have higher interest rates than regular savings accounts.
4.25%Annual Percentage Yield (APY) is subject to change at any time without notice. Offer applies to personal non-IRA accounts only. Fees may reduce earnings. For CD accounts, a penalty may be imposed for early withdrawals. After maturity, if your CD rolls over, you will earn the offered rate of interest in effect at that time. Visit synchronybank.com for current rates, terms and account requirements. Member FDIC
Term
13 months
Checking accounts are used for day-to-day cash deposits and withdrawals.
Checking accounts are used for day-to-day cash deposits and withdrawals.
0.10%Advertised Annual Percentage Yield (APY) is variable and accurate as of 07/01/2024. Rates are subject to change at any time before or after account opening.
A brokerage account is an investment account that allows customers to buy various investments, including stocks, bonds and mutual funds. The brokerage firm can help customers pick their assets, and customers can earn money on their investments.
If you’re looking to do something productive with your cash, then you have very different options to choose from if you’re considering a brokerage account versus a CMA. The best option for you depends on your financial goals. Here’s what to consider when making your choice.
Think about how you want your cash to work for you. Cash management accounts and brokerage accounts serve different purposes. The earnings from brokerage accounts vary depending on stock market performance, but overall they have the potential to earn much more than CMAs over time. However, there is no guarantee your investments will pay off — there’s always the risk you’ll lose some or all of your cash. A good guideline: Never invest any cash you need back in the next five years, so you can weather inevitable market ups and downs.
CMAs, on the other hand, can be used as a stable place to put and use cash on a daily basis, especially those that offer debit cards that allow customers to make purchases.
Evaluate how you feel about risk. You stand to earn more with an investment account, but you also risk losses. With a CMA, you’ll earn a bit of interest — likely quite a bit less than your investment income — but your savings aren’t at the mercy of the performance of the stock market. A CMA will function more like a traditional checking or savings account.
You can consider getting both kinds of accounts. Since CMAs and brokerage accounts are both offered by brokerage firms, they can often be linked if they’re available from the same provider. With these accounts linked, it can be easy to transfer funds back and forth between investing or spending and saving.
