What is a cash management account and how is it different from a savings account?

While savings accounts may offer a relatively safe place to park your money, some of their restrictions might not work for everyone. Investors, SMSFs, and trusts may prefer cash management accounts for their flexibility and efficient fund management with the potential to earn interest.

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Many people opt for the relative safety of a savings account to park their money and earn interest. However, accessing higher interest rates often requires meeting specific terms and conditions, such as limiting withdrawals or maintaining minimum deposits.

While this may work for everyday savers, such restrictions might not meet the needs of investors or entities like SMSFs and trusts, which often require more flexibility to handle transactions such as settling trades, receiving dividends, or funding opportunities.

Cash management accounts can offer a practical alternative, combining the convenience of a transaction account with the interest-earning potential of a savings account. These accounts can be used by individual investors, companies, trusts, and SMSFs to manage cash transactions while also earning interest. Additionally, some CMAs can be linked to online trading platforms, providing a convenient way to manage investments from one central account.

Cash management accounts function similarly to traditional bank accounts but are specifically designed to meet the needs of investors. They allow users to deposit and withdraw money electronically through BPAY, direct debits, or online transfers. Some providers may also offer a linked debit card for ATM or EFTPOS transactions, though this is less common.

What makes cash management accounts different is their focus on cash flow management rather than everyday banking. Investors can use them to keep investment transactions separate from daily expenses, making it easier to track payments like dividends or investment costs without mixing them with regular spending.

In addition to providing a clear, centralised view of investment transactions, CMAs also allow you to earn interest on your balance. The interest rate depends on your provider and may be offered as a flat rate or as tiered rates that increase with higher balances, giving you the potential to grow your funds while managing your investments.

Like other bank accounts, money deposited in a cash management account with an Authorised Deposit-taking Institution (ADI) is protected under the Australian Government’s Financial Claims Scheme (FCS). This scheme guarantees balances of up to $250,000 per account holder per ADI. This guarantee ensures that your money remains safe, even in the unlikely event that the bank or financial institution goes out of business.

Are there any fees or charges for operating a cash management account?

Cash management accounts don’t typically charge account-keeping or operational fees. Depending on your provider, you might pay nothing for transactions carried out online or over the phone, or there could be a limit on the number of free transactions allowed. Additionally, some providers may offer extra features, such as international transfers, which might incur additional charges. Be sure to read the fine print when comparing options to understand the fees and costs associated with the account, helping you make an informed choice.

When comparing a savings account to a cash management account, it’s helpful to consider how each aligns with your financial needs. Savings accounts are generally designed to promote a savings habit while a cash management account is designed to help you streamline your investment cashflow.

Both savings accounts and cash management accounts may offer competitive interest rates. However, some savings accounts come with higher interest rates, particularly through bonus or introductory offers, but these rates may be tied to conditions such as limiting the number of withdrawals to encourage saving.

CMAs, on the other hand, usually offer competitive interest rates, though these may not match the highest rates available with some savings accounts. They are often associated with better integration into investment platforms, which can be helpful for those managing investments.

CMAs may also provide more flexibility for transactions. While savings accounts sometimes restrict the number of withdrawals per month or apply fees to excess transactions, CMAs are typically designed to support frequent access to funds without similar limitations.

Opening a cash management account is generally a simple process that can often be completed online. To be eligible, you must be an Australian citizen or resident aged 18 or older. Most financial institutions will require valid identification, such as a driver’s license or passport, to meet verification requirements.

Depending on the provider you choose, your identification may be verified online or you may need to send your documentation for verification. While some CMAs can be opened without a deposit, others may require a minimum opening balance or a minimum ongoing balance.

When choosing a CMA, remember to compare interest rates as well as any associated fees and charges. Many CMAs offer competitive rates and seamless integration with investment platforms, which can be beneficial for managing cash flow. Reviewing the account’s features, such as transaction limits and how you may access your funds, can help you select an account that aligns with your financial goals and usage requirements.