When it comes to short-term cash storage, two options stand out: cash management accounts (CMAs) and high-yield savings accounts (HYSAs). With interest rates typically between 1.00-2.00%, both options offer far more earning potential than the average 0.46% offered by traditional banks. But how do you decide which one is right for you?
It may come down to how easily you can access your money or whether you’re looking to link an investment account. CMAs often don’t limit how many times you can withdraw money, unlike traditional savings accounts that cap transactions at six per month. This flexibility, coupled with the ability to integrate with brokerage accounts, might sway some customers toward CMAs.
On the other hand, HYSAs have the benefit of familiarity. They operate just like the savings accounts you’ve used before but with a much higher interest rate. If your main goal is to park your cash and earn interest without needing to frequently dip into the funds, a high-yield savings account could be your best bet.
What’s the Real Difference Between CMAs and HYSAs?
In many ways, these two accounts are alike. Both offer:
High interest rates
A safe spot for your emergency fund
Federal insurance on your funds
But they do differ in key areas. CMAs are usually offered by nonbank financial services like robo-advisors, while HYSAs are the domain of banks. And unlike savings accounts, CMAs don’t limit the number of withdrawals or transactions you can make each month.
The Unique Perks of CMAs
Cash management accounts often come with extra features. For example, some offer check-writing capabilities, which is a rarity for most savings accounts. And if you already have an investment account with a financial services provider, linking it to your CMA could be a breeze.
Wealthfront’s Cash Account, for instance, boasts a 4.50% APY with a $1 minimum balance. Betterment’s Cash Reserve comes in even higher, offering a 5.00% APY without any minimum balance requirement.
A Closer Look at High-Yield Savings Accounts
High-yield savings accounts have made waves in recent years, primarily because online banks can pass savings onto customers through higher APYs. Without the overhead of physical branches, these banks offer interest rates that are substantially higher than those of traditional brick-and-mortar institutions.
If convenience and familiarity are priorities for you, a high-yield savings account might be the better choice. You’ll likely have standard access to your funds via online banking, ATMs, or even branch services, making it a seamless fit for those who value ease of use.
Which Account Should You Pick?
Ultimately, your choice between a cash management account and a high-yield savings account depends on your personal needs. Here are a few things to consider:
Access to Funds: Do you need frequent access to your money? CMAs might offer better flexibility without limits on withdrawals, while HYSAs come with a cap of six withdrawals per month.
Extra Features: Looking for a debit card or check-writing capability? CMAs might offer these perks, while HYSAs are more bare-bones in comparison.
Account Linking: If you want to link a checking account or brokerage, think about what would be most convenient. CMAs can easily connect to investment accounts, whereas HYSAs often pair well with traditional checking accounts.
At the end of the day, both CMAs and HYSAs are excellent options for growing your cash in the short term. Whichever you choose, the key is to understand your financial goals and how each account type fits into your broader strategy.
