If you're interested in the capital market, you may have heard of brokerages like Wealthfront, SoFi Money, and Robinhood. For the last year or two, more of these companies have been providing cash management accounts and savings accounts.
Then what is the difference between the two forms of accounts? It's about what you're going to spend and borrow or whether you're trying to save. While brokerages sell both cash management and brokerage accounts, their functions are somewhat different.
CMAs — which act in the same manner as bank accounts — allow consumers to park their money and receive a fixed interest rate, often with the option to make transactions with a debit card. Brokerage accounts help investors invest in investments such as stocks, shares, and mutual funds to gain investment profits.
Here's something about the parallels and disparities between CMAs and brokerage accounts.
| Similarities | Differences |
| Brokers sell all forms of accounts. |
Earnings — whether interest or dividend income — come from various sources. Brokerage accounts gain money from market results, and CMA consumers earn interest from their CMA supplier. |
They both have the opportunity to make cash returns. |
Earnings are theoretically even better for brokerage accounts over time but can lose value due to bad market results. |
| Under the same brokerage, these two forms of accounts may be connected to each other. | CMAs offer fixed interest rates, while brokerage earnings differ based on how the investing operates. |
| Money in a CMA may usually be used to pay bills and make payments, often using a debit card or check-writing; money in an investment account is solely for the buying, exchange, and sale of shares, bonds, funds, and other instruments. | |
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Insurance compensation comes from a number of outlets. SIPC insurance protects the loss or fraud of a trading company, and CMAs earn FDIC insurance as assets are swept behind the scenes to affiliate banks when a client makes a deposit. |
What is the distinction between cash management accounts and brokerage accounts?
Description of a cash management account
A cash management account is a cash account provided by non-bank financial service providers that let consumers spend and save their uninvested funds. Brokerage companies and investment firms also offer these accounts as a way to supplement savings accounts.
Defining the Brokerage Account
The brokerage account is a savings account that requires investors to hold a range of shares, including stocks, bonds, and mutual funds. The brokerage company can help customers pick up their properties, and customers can make money off their savings.
What kind of account is right for me?
If you're trying to do something constructive with your cash, you have very different choices to choose from if you're choosing a brokerage account versus a CMA. The right choice for you depends on your financial priorities. Here's what you need to remember when you make your decision.
Dream of how you like your money to work for you. Cash management accounts and investment accounts have several functions. The dividends from brokerage accounts vary based on the stock market's success, but overall they can gain much more than CMAs over time. However, there is no guarantee that your investment will pay off — there is always the possibility that you will lose any or all of your cash. A helpful guideline: never spend whatever money you need back in the next five years so that you can weather the inevitable ups and downs of the economy.
CMAs, on the other hand, can be used as a stable way to way and use cash daily, particularly those selling debit cards that allow consumers to make transactions.
Consider how you feel about your chance. You're going to benefit more from a savings portfolio, but you're still going to risk losses. For a CMA, you're going to gain a bit of interest — probably a little less than your investment income — but your investments are not at the mercy of the results of the stock market. A CMA would look much like a conventional check or savings account.
You might consider having all kinds of accounts. As brokerage companies sell both CMAs and brokerage accounts, they can also be connected to the same company. It can be easy to move funds back and forth between investment or spending and saving with these related accounts.