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Who should use a cash management account?

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A number of elements play into the success of any startup, small business, or even corporation. Of those elements, one of the easiest to overlook is your choice of bank account. There are savings accounts, checking accounts, money market accounts, investment accounts, brokerage accounts — almost too many accounts to count. One account type that deserves more attention is the cash management account (CMA).

To help your company get the most bank for its buck, we're going to cover what cash management accounts are, how they differ from your run-of-the-mill bank accounts, and who should consider using one.

What is a cash management account?

Bank accounts can serve a number of purposes. Your savings account is for saving, your checking account enables check writing, the use of ATMs, and so on, and your investment account is all about investing and growing your funds. But each of these accounts is largely limited to their one area of specialization. You don't open a checking account with the intention of investing, just like you don't open an investment account in the hopes of having a low-interest but safe place to keep your savings.

A cash management account is essentially a Swiss Army account, capable of doing almost everything the aforementioned accounts do with the added benefit of a high annual percentage yield (APY) in some cases. A CMA allows you to transfer funds from one account to another, manage investments, utilize a debit card or credit card, use bill pay features to manage utilities, and so on.

But, a cash management account isn't actually a bank account.

Cash management account vs. bank account

Bank accounts are opened with physical banks, online banks, or credit unions. A CMA, on the other hand, isn't generally offered by banks. Instead CMAs are typically offered by non-bank financial institutions.

Because CMAs aren't offered by banks, they play by a different set of rules. For example, a CMA doesn't have federally-mandated limits around withdrawals like a traditional bank account might have. 

CMAs also aren't qualified for FDIC insurance because they're not available with banks. But, most institutions offering CMAs will move the money into an FDIC-insured partnered bank account overnight, or they'll be a member of the Securities Investor Protection Corporation (SIPC), which is a group that insures and guarantees the safety of money held within their establishments.

When it comes to comparing CMAs to traditional bank accounts, the differences vary depending on the accounts being compared. Every bank and credit union offers different features with their bank accounts, just as many institutions will offer different perks with their CMAs. In short, a CMA differs from a bank account in that it's not technically a bank account, it isn't offered by a bank, and it isn't FDIC insured.

Now, let's take a look at which businesses should use a CMA.

Who should use a cash management account?

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Cash management accounts have a number of benefits and are a great fit for a number of businesses. To get an idea of whether or not your business would benefit from a CMA, consider whether your business's needs and limitations match up with those outlined below. These are the companies who should consider a CMA.

1. Businesses in need of easier financial management

Most CMAs allow you to link existing checking, savings, and high-yield accounts. This makes it possible for you to use a CMA as a single portal for managing your finances — giving you a quick view of your cash balances, online savings accounts, and other account balances. This is especially useful for businesses that regularly transfer money, receive check deposits, and utilize any kind of investment product.

If your business simply has a business bank account or everyday checking account, you may not need a CMA right now. But, if you have numerous accounts and find yourself swimming in finances, a CMA can help you with your financial planning.

2. Companies with some finance experience

Because CMAs aren't offered by banks, they can have varying levels of amenities that are common with your typical bank accounts. For example, depending on the company offering the CMA, your account may or may not have access to ATMs. Some companies will offer CMAs with partnership networks that allow you to use ATMs with a provided debit card and, in some cases, avoid ATM fees.

Another example of functionality that may or may not be present with the CMA you choose is the ability to deposit and withdraw money. If your CMA doesn't have a bank partnership or ATM access, you could end up having to go to a financial institution to make any kind of deposit or withdrawal. 

For companies with financial experience, this can be a small hurdle worth hopping over. But, if you're completely new to finances and don't have a financial consultant or bookkeeper, you might want to give the CMA some extra thought.

3. Startups looking for financial growth

Many CMAs, like the Brex Cash account, will offer a high yield on cash in the account. This means you can actually receive a payout for keeping your money in the account, like an investment or high-yield savings account. Some CMAs will have higher interest rates than others, so be sure to research the rate offered by any CMA you're interested in.

If your startup is looking to simplify its finances and have access to cash when you need it, a CMA can be a great option. While most CMAs won't offer a cash back reward like a credit card, the high-yields offered through a CMA can more than make up for it.

4. Businesses that prefer to keep things online

Most CMAs won't be offered by companies with physical locations. Instead, they're offered online. If your business is already used to online banking, a CMA will be very similar. Because most CMAs are offered by online-only companies, you should look for a company with great online support and a user-friendly portal for your needs. 

5. Companies with funds that exceed FDIC limits

Banks are FDIC insured, which is great when it comes to the safety of your funds. But, banks are also privy to FDIC deposit limitations, typically around $250,000. This means you're limited to keeping that amount of money with one institution before excess funds aren't insured. This can result in you needing to open accounts with other banks, which splits your funds and makes money management more of a hassle.

With a CMA you can often find accounts without an FDIC deposit limitation, meaning you can store as much as you want. There may be monthly fees with some of these accounts, but your funds will be under one roof and easier to manage. And there's the high-yield payout to consider. Depending on the amount of money you have in a CMA, you could be earning far more through the high-yield payout than you ever pay in fees, and more than you would get in rewards with a traditional credit card.

An early-stage startup without any experience or funding likely won't need a CMA. But, if you're in a slightly more experienced and stable place, a CMA can be a great fit for your company.

Winning with cash management

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No single account will be the right fit for everyone. Cash management accounts offer a streamlined way to manage various accounts with the potential to grow your funds. But, there's a trade off: Not all CMAs will come with the usual banking amenities. 

If you're comfortable with finances and confident in your abilities, shop around and find a CMA that has the right rewards and features to match your business needs. If and when you find the right fit, you can rest assured your finances are all visible in one neat and tidy, high-yield place.

Brex Cash is offered by Brex Treasury LLC, a registered broker-dealer and member FINRA and SIPC. Brex Cash is a program that allows you to elect to automatically place your cash balances into certain money market mutual funds. Brex Treasury LLC is not a bank, your Brex Cash account is not a bank account, and it may not offer all of the services and protections that banks may offer. The cash you deposit into your Brex Cash account will not be stored at a bank. 

You could lose money by investing in a money market mutual fund. Although the fund seeks to preserve the value of your investment at $1 per share, it cannot guarantee it will do so. An investment in the fund is not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency. The fund's sponsor has no legal obligation to provide financial support to the fund and you should not expect that the sponsor will provide financial support to the fund at any time. 

Brex Treasury LLC is not an investment adviser, and therefore investors should consider the investment objectives, risks, and charges and expenses carefully before investing. See program disclosures and the applicable fund prospectus for details and other information. Contact us for a copy of the fund prospectus and recent performance data. You should read the prospectus carefully before investing.

Brex Treasury LLC does not charge transaction or account fees. However, money market funds bear expenses and fees. Fees are subject to change. Yield is variable and may fluctuate as market conditions change.

Brex Treasury is a member of SIPC, which protects securities customers of its members up to $500,000 (including $250,000 for claims for cash). Explanatory brochure available upon request or at www.sipc.org. Securities in your account are protected up to $500,000. For details, please see www.sipc.org

This is not an offer, solicitation of an offer, or advice to buy or sell securities, or to open a brokerage account in any jurisdiction where Brex Treasury LLC is not registered.

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©2020 Brex Inc. “Brex” and the Brex logo are registered trademarks.The Brex Mastercard® Corporate Credit Card is issued by Emigrant Bank, Member FDIC. Terms and conditions apply. See the Brex Platform Agreement for details.Brex Inc. provides a corporate card. Brex Treasury LLC is an affiliated SEC-registered broker-dealer and member of FINRA and SIPC that provides Brex Cash, a program that allows customers to sweep uninvested cash balances into certain money market mutual funds or FDIC-insured program bank accounts. Investing in securities products involves risk, including possible loss of principal. Neither Brex Inc. nor any of its affiliates is a bank. Please see brex.com/cash for important legal disclosures.