What Are the CMA Pros and Cons? (Plus Definition and FAQs)
By Indeed Editorial Team
Published 27 April 2022
The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.
A cash management account (CMA) combines some aspects of savings and checking accounts with features such as little to no fees and competitive yields. It's ideal for individuals looking for safety and accessibility for large amounts of money. Understanding what CMA is can help you decide if opening one is right for you. In this article, we explain what a CMA is, outline the CMA pros and cons and answer some frequently asked questions about it.
CMA pros and cons
Before learning the CMA pros and cons, it's important to understand first what a CMA is. A CMA is an alternative to conventional savings or checking accounts offered by non-bank financial service providers. They help clients keep large sums of money easy to access and secure, while also paying some interest. Each CMA is unique, but clients often get easy access to their funds in the form of a chequebook or debit card. These accounts usually sweep a holder's cash into one or more accounts at partner banks where their money is eligible for deposit insurance.
Here are the CMA pros and cons:
Pros of CMAs
There are several benefits to using a CMA. These include:
Flexibility: CMAs often make it easy to withdraw your funds. Many non-bank financial service providers offer debit cards you can use to make purchases or withdraw cash at automated teller machines and some may offer chequebooks.
Easy investment: Brokerage firms make it easy to use the money in your CMA to invest, which is a nice perk if you often buy and sell securities.
Reasonable interest rates: CMAs often pay higher interest rates compared to traditional savings and checking accounts at most banks. Although you may find higher interest rates at some banks, a CMA offers much of the flexibility of a checking account, which rarely pays interest.
Hong Kong Deposit Protection Board (HKDPB) protection: For clients with large balances, CMAs make it easy to keep by offering HKDPB insurance on balances of up to $500,000, including interest and principal.
Low Fees: Another benefit of CMAs is that they often have lower fees than conventional bank accounts. Many have no monthly maintenance fee at all, which leaves you free to worry about using your money instead of fees.
ATM Rebates: You may find that there are CMA providers that give generous rebates, while others limit their rebates to specific networks or only to ATMs in Hong Kong. You may also find some brokerage companies that offer access to ATM networks that are free of charge.
Cons of CMAs
Before opening a CMA, consider these downsides:
Lack of features: Banks often offer features like bill pay to checking account holders. Many CMAs don't offer these money-management features, so they may not be a good replacement for a conventional checking account.
High minimum balances: Some companies that offer CMAs require high minimum balances.
Face-to-face customer service may not be available: Like an online bank, a nonbank financial service provider that offers CMAs tend to have remote customer support, allowing them to have lower overhead and pass the savings on to their account holders in the form of higher interest rates. Although technology can make it easier to get virtual support, online CMAs can be a challenge for individuals who prefer face-to-face interaction.
CMAs don't offer the best returns: Many investment vehicles, such as bonds, mutual funds and stocks, offer great returns. There are also certificates of deposits and some savings accounts that provide better rates than CMAs.
Potential errors: Since the brokerage company moves your money around between accounts and financial institutions, it's exposed to potential processing errors.
Uninsured investments: While the investments that a CMA uses are often low risk, that doesn't mean they're risk-free. Investments such as money market funds may not have insurance from HKDPB, which means you can lose your money and be unable to recover it.
Frequently asked questions about cash management accounts
Here are the answers to some frequently asked questions about CMAs:
Who needs a CMA?
A CMA is a good choice for the following groups of individuals:
Individuals who have a large amount of cash: A CMA is ideal for people who have a large amount of money who want to keep it liquid but protected.
Individuals who want simplicity: A CMA puts your money in one place, so it's not necessary to maintain a separate savings and checking account.
Individuals who like online banking: Anyone who prefers online banking can make good use of a CMA. If you're already accustomed to doing your banking through a computer rather than in-person, you're ready to start using a CMA.
Where can you get a CMA?
Generally, credit unions and traditional banks don't offer CMAs. Instead, if you want to open a CMA, look to nonfinancial institutions, such as a brokerage account. Many brokerage companies offer perks for clients who maintain a huge balance. If the brokerage company you're considering doesn't offer a CMA, you have a lot of alternatives, such as online investing platforms and robo-advisors.
How does a CMA differ from a savings or checking account?
CMAs are neither savings nor checking accounts. They work like a combination of the two, offering the flexibility of a checking account with the interest of a savings account. For daily use, you may not notice much difference between a CMA and a conventional bank account.
The big difference is the company that offers these accounts. The company that offers your CMA opens savings or checking accounts on your behalf at its partner banks. It then manages these accounts for you, moving funds in and out of those accounts as necessary. For example, if you deposit $400,000 into a CMA, the brokerage might put $80,000 in five different bank accounts.
How can you choose the best CMA?
If you're thinking about opening a CMA, it's important to consider the following factors when looking at your options:
Ease of access
Look for CMAs that make it easy to use your funds. That includes providing a debit card, chequebook and online bill payment. For accounts that provide a debit card, make sure to know the restrictions. Some CMAs limit the amount you can withdraw in a day. In addition, make sure the debit card the company issues works on the ATM network you prefer. Some CMAs reimburse ATM fees, allowing you to use any ATM you come across.
CMAs offer interest rates on par with the best savings accounts on the market, but that doesn't mean they all offer the same rate. Thus, consider comparing the interest rates each account offers. Some may vary with your account balance, while others may be the same no matter how much you deposit.
With any financial account, it's important to be aware of the fees you may pay. Before you open a CMA, consider checking to see if it has minimum balances or any maintenance fees. In addition, take a moment to look for other fees you may pay, such as out-of-network ATM fees.
HKDPB insurance limits
A CMA lets you protect your money by splitting them among multiple banks. This can give you more than the standard $500,000 insurance offered by the HKDPB. If you have a large amount of money to deposit in your CMA, check to see how much of it is insured by the accounts you're considering. Some CMAs offer more protection than others. If you're worried about keeping large amounts of money, consider looking for an account that provides enough insurance to protect your full balance.
Who regulates cash management accounts?
The Securities and Futures Commission (SFC) oversees the compliance of cash management accounts. SFC ensures that brokerage companies offer complete transparency to CMA holders. This includes information about HKDPB coverage, risks and account structures.
How can you deposit funds into a CMA?
A CMA lets you deposit funds in several convenient ways. You can deposit or withdraw funds from your CMA account by using an ATM, via direct deposit, through wire transfer or through online or telephone funds transfer. Some CMA providers offer an online facility or mobile app that allows you to transfer money between your linked accounts.
Are CMAs taxable?
In general, assets held in a cash management account are taxable, which means it's necessary to declare any capital gains or losses, dividends or interest in your account each year. There are certain account types, such as an individual retirement account, that are tax-deferred and allow you to hold assets in a specially designated CMA account. It's important to consult your legal or tax advisor before making any financial decisions.
Please note that none of the companies, institutions or organisations mentioned in this article are affiliated with Indeed.
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