Should You Open a Cash Management Account Where You Invest?

More online advisors now offer cash management accounts promising higher rates and better features than banks, but you may still need a traditional account.

Andrea CoombesJune 10, 2020
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If you’re looking for a better bank account, your choices are increasing. Online investment advisors — including Wealthfront, Betterment, SoFi, Acorns and others — are rolling out cash management accounts at a fast pace. These accounts offer features similar to savings and checking accounts. In some cases, they take it a step further by offering higher interest rates, cash-back rewards and other add-ons.

Traditional banks often pay rates closer to 0.01% and charge fees that eat into your money — so it makes sense to shop around. And while online banks offer competitive rates, storing your savings and investments in one place offers convenience, which might make it easier to reach your long-term financial goals. But keep in mind there’s a decent chance these cash management accounts with online investment advisors won’t replace your regular checking or savings account.

Find the best account for you

Look beyond the high rates, low fees and potential convenience to make sure an account is a good fit. Ask yourself these four questions:

1. Does the account do what I need it to do?

Some robo-advisor-backed cash management accounts don’t have the full functionality of a traditional bank account — at least not yet. Before picking an account, make sure you understand how you can withdraw or transfer money, and that the process fits your goals and needs.

2. Is my money insured if this company goes belly up?

Businesses fail every day (see: financial crisis, 2008), so it’s important that your money be protected by insurance.

The Federal Deposit Insurance Corporation protects bank deposits up to $250,000. Money in investment accounts is generally covered by the Securities Investor Protection Corporation, which offers insurance of up to $500,000 in the event your investment broker’s business fails. Here’s what SIPC insurance does and doesn’t protect.

When an account says it’s insured, it’s worth double checking: In late 2018, the online investment broker Robinhood had to backtrack on promises of a cash account paying 3% interest. It turned out their accounts weren’t actually covered by SIPC insurance, as claimed.

3. What risk is my money subject to?

If you want to avoid investment risk, make sure your money is in a bank account — which is what Wealthfront, SoFi, Stash and Acorns offer. But don’t forget that money in a bank account comes with the risk that inflation will eat into your purchasing power.

Some broker and robo-advisor accounts are investment accounts designed to hold cash. That is, you’re investing, but not in the volatile stock market. Instead, you might be buying into bonds or a money market fund.

4. What will this cost me?

While a lot of new accounts promise no fees or low fees, check the fine print. For example, Stash’s account charges a fee of up to $4.95 to deposit cash.

Also, some investment advisors will charge an advisory fee for the money that their clients have in cash. “It’s important to look at the expense ratio and any related expenses,” says Micah Hauptman, financial services counsel at the Consumer Federation of America in Washington.

New cash management account offerings

Robo-advisor cash accounts

These are just some of the new products offered by robo-advisors:

Wealthfront's cash account charges no fees and is currently paying 0.35%. The minimum account balance is $1, and you can make an unlimited number of transfers into and out of the account. The account comes with a debit card and offers early access to paychecks (up to two days) for customers who have direct deposit. It comes with $1 million in FDIC insurance because it’ll stash your money in up to four different banks.

Betterment's Cash Reserve product currently pays 0.40%. (This interest rate is variable and may change.) The account includes FDIC insurance up to $1 million.

SoFi Money currently promises a 0.20% APY, no fees, free ATMs, mobile photo check deposit and mobile transfers, and FDIC insurance up to $1.5 million. You can open a SoFi Money account even if you don't have another SoFi account.

Investment app cash accounts

Stash Invest's account includes the Stock-Back rewards program, which invests in individual stocks or ETFs. The account itself doesn’t pay interest. Stash offers access to about 19,000 free ATMs and doesn’t charge maintenance fees on its bank account.

Similar to Stash, Acorns is an investment app that makes it easy to round up your spare change and send it to an investment account. Acorns offers a no-interest cash account, complete with debit card and free and/or fee-reimbursed ATM access.

Here's a comparison of their investment accounts:

Broker and bank accounts

Online brokers also offer various types of accounts. Three that we rate highly in our top picks for best checking accounts are Charles Schwab, Fidelity Investments and Ally.

If you’re looking for a better interest rate on your savings — and if you’re getting less than about 1%, you definitely should be — then check out our top picks for best savings accounts. Three of our favorites are Marcus by Goldman Sachs, Ally and Synchrony.

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