Which one is right for you?

Do you want to earn more interest on your savings? Many people in your position use high-yield savings accounts (HYSAs) to maximize their savings benefits. But there’s another, less traditional option you may not know about: cash management accounts (CMAs).

HYSAs and CMAs both offer higher interest rates than traditional savings accounts, but they are useful for different purposes.

Because of their competitive rates and FDIC insurance, HYSAs are the best choice for emergency savings for many people. However, if you are looking for an account that allows you to save and invest, a CMA may be what you are looking for. Also, some CMAs have FDIC insurance up to $8 million per person.

What is a high yield savings account?

A high yield savings account (HYSA) is an account that has all the features of a traditional savings account, but pays a higher interest rate. The best rates on HYSAs are currently around 4% APY, while the national average for savings accounts is 0.38%.

These accounts are designed to encourage savings, so they don’t come with features that make it easy to withdraw money, such as debit cards or checks. Instead, they reward you with high rates for keeping your money where it belongs.

Here are a few common features associated with HYSAs:

What is a cash management account?

A cash management account (CMA) is a type of financial account that combines features of a checking, savings, and investment account. CMAs are typically offered by investment firms and brokerages rather than traditional banks and credit unions.

With money management accounts, you usually get debit card and overdraft protection, and you can set up automatic deposits. But what makes them different is that you can also choose one of the following two options for your money:

• Invest money: You can invest your money in assets like mutual funds and stocks to get returns on your money. The downside, however, is that there is always a risk of losing the money you invest.

• Money: Keep your money in cash to get FDIC-insurance and avoid losing your savings. The downside is that you will usually earn less interest than you would with a HYSA.

Another major difference between a CMA and a traditional bank account is the insurance coverage. Because of their “bank sweep” feature that spreads your money across multiple insured banks, you can get more FDIC insurance through a CMA than you could through a regular bank account. For example, Betterment and Fidelity money management accounts are both insured up to $4 million and Wealthfront insures up to $8 million.

However, similar to online bank accounts, CMA services are often online. That means you can’t visit a physical branch or ATM to handle your money, and there may not be live agents to provide customer support.

High-yield savings account vs. money management account: Key differences

The main difference between HYSAs and CMAs is that HYSAs usually offer higher interest rates than CMAs, but they don’t give you the option to invest your savings. Here’s a closer look at what makes them different from each other.

Which is better: HYSAs or CMAs?

For your savings, HYSA is almost always a better choice than CMA. HYSA is specially designed to help you grow your savings while keeping your money safe and accessible. These accounts often offer the highest APYs available on FDIC-insured deposits and have fewer moving parts than a money management account.

That said, a cash management account (CMA) may be a better fit if you want your savings account to double as a daily cash hub.

If you’re still not sure which option is best, here are a few questions to ask yourself:

• I was saving for a goal? If you are saving money for an emergency fund or for fixed expenses, keep the funds in a HYSA where you will not risk losing the principal and you can earn the highest possible interest rate.

• Am I already investing with a brokerage? If you already use a brokerage account and regularly move money to investments, CMA can make your financial life easier. If you think you can benefit from keeping your money and investments in the same place, a CMA may provide a smoother experience.

• Do I have more than $250,000 to invest? With deposits over $250,000, choosing the cash option from CMA is the easiest way to get all of your insurance money. You can still choose HYSA instead, but you will have to open and manage multiple accounts to get the level of insurance coverage you need.

• Do I need this money for daily expenses? If you need money for bills and other day-to-day expenses, you may not want to use a HYSA or CMA. In general, the best choice for managing daily transactions is a checking account.