What is the difference between a brokerage account and a cash management account?
Are brokerage accounts and cash management accounts the same? No. Brokerage accounts are used to buy and sell securities. Cash management accounts act more like traditional bank savings and checking accounts, but are provided by brokerage and other non-bank financial institutions.
How Does a Brokerage Account Differ From a Bank Account? Brokerage accounts hold securities such as stocks, bonds, and mutual funds and some cash. A bank account only holds cash deposits.
MMAs usually have higher minimum balance requirements than cash management accounts and may charge monthly maintenance fees. Cash management accounts usually have lower fees, lower minimums, higher APYs and higher FDIC coverage limits than MMAs.
You can afford to take risks -- A brokerage account is one of the best ways to buy investments including stocks, bonds, and funds. These investments generally offer higher returns than no- or low-risk alternatives (like money market accounts), but with higher risk of loss.
A cash management account is a nonbank cash account – typically managed online – where you can park your cash, earn competitive interest rates and withdraw money as you need it. What do we mean by “nonbank?” CMA providers are typically investment advisory firms or broker-dealers (more on this later).
Brokerage accounts allow investors to buy and sell numerous types of investments. When opening a brokerage account, investors have two main options: a cash account or a margin account. The difference between them is how and when you pay for your investments.
Downsides of a standard brokerage account
Since it's a taxable account, you'll have to pay taxes on earnings in your account, including capital gains and dividends.
Brokerage Account. Cash management accounts are for saving and earning interest; brokerage accounts let you invest.
- Interest rates may not be competitive: While some of the best cash management accounts offer highly competitive rates, not all of them do. ...
- May not have some features: Some of the extra features of the best cash management accounts may not be offered with all such accounts.
| PROS | CONS |
|---|---|
| Simplified money management | Potential fees |
| Easy set up | Limited earning potential |
| Convenient access | Limited customer service |
| Competitive interest rates | Possible high minimum balance requirements |
What is the difference between Fidelity brokerage and cash management account?
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.
Are cash management accounts taxable? In general, assets held in a Merrill Cash Management Account ® (CMA account) are taxable, meaning that any interest, dividends or capital gains and/or losses must be declared on the account holder's taxes each year.
Cash management accounts, also called CMAs, offer an alternative to traditional checking and savings accounts.
Unlike a bank or credit union, the money in your cash management account isn't directly insured by the FDIC. But because CMAs typically sweep uninvested cash into multiple accounts at multiple partner banks every day, coverage limits often exceed the FDIC insurance limit of $250,000.
Money market accounts: Cash management and money market accounts both may require high minimum balances. Both types of accounts can be insured by the FDIC, yet a cash management account may be covered up to more than the standard $250,000.
Brokerage accounts have no contribution limits or early withdrawal penalties. They offer flexibility but lack the tax benefits found in retirement accounts.
Many investors open a brokerage account to start saving for retirement. However, the flexibility of this type of account means you can withdraw at any time and use the funds for shorter-term goals, too, such as a new house, wedding, or big remodeling project. Your brokerage account can help you with: Trading stocks.
If you've got a large chunk of cash, you might secure better returns outside of a brokerage account. You could lose money. If your money is swept into a money market fund, that cash won't be insured by the FDIC or SIPC. It's possible to lose money.
Brokerage vs.
A self-directed IRA or SDIRA offers the added advantage and flexibility of allowing you to invest in real estate (as investment property only). With IRAs, you'll generally have a minimum deposit requirement of $1,000 whereas many brokerage accounts have no minimums to get started.
Is your money safer in a bank or a brokerage account?
While bank balances are insured by the FDIC, investments in a brokerage account are covered by the Securities Investor Protection Corporation (SIPC). It protects investors in the unlikely event that their brokerage firm fails. However, certain rules and conditions apply—and investment earnings are not insured.
Taxable brokerage accounts. An ordinary brokerage account that is not a retirement account is a taxable investment account. If you make money because your investments go up in value, or because your investments pay you dividends or interest, this income will be taxed.
The Fidelity Cash Management Account is intended to be a storage spot for funds that were recently invested or about to be invested.
The Fidelity Cash Management Account ("Account") is a brokerage account designed for spending and cash management. Fidelity is not a bank and brokerage accounts are not FDIC-insured, but uninvested cash balances are eligible for FDIC insurance.
- High-yield savings accounts.
- Certificates of deposit (CDs)
- Bonds.
- Money market funds.
- Mutual funds.
- Index Funds.
- Exchange-traded funds.
- Stocks.
