PERSONAL FINANCE Your brokerage wants to be your banker? This might help

If you’ve invested with a brokerage firm in recent years, you may have noticed that it offers a product called a cash management account. These accounts are very similar to a checking or savings account and typically provide competitive interest rates, debit cards and other money management features. However, those services aren’t always standard.

So what would be the appeal of opening a CMA with a brokerage? Here are some things to consider when deciding whether to let your brokerage help you manage your cash.

How are cash management accounts different from bank accounts?

The most crucial distinction between a CMA and a bank account is that CMAS are offered by nonbank financial institutions that don’t possess a bank charter. Usually, this would mean that CMAS cannot provide their customers federal insurance on their balances, but many brokerages partner with chartered banks that sweep customers’ funds into bank accounts behind the scenes. That allows them to offer insurance from the Federal Deposit Insurance Corporation on customer balances.

What are the pros and cons of cash management accounts?

PROS

■ Interest rates tend to be higher than rates at traditional banks. Though some brokerages don’t offer much interest on their CMAS, others offer significantly higher interest rates than the national average of 0.06 percent for savings accounts. Robinhood Cash Management, for example, offers 0.30 percent, and Sofi Money offers 0.25 percent with a $500 minimum balance.

■ Benefits are similar to checking and savings accounts. Some CMAS offer free ATM access, debit cards, mobile check deposit, early direct deposit and no monthly maintenance fees.

■ Transfers between CMAS and investing accounts can be faster. When you have a CMA at your brokerage, you may be able to avoid a waiting period between account transfers so that you can invest your money faster. CONS

■ Interest rates have dropped. The financial industry is currently in a low-rate environment, meaning interest rates on deposit accounts are particularly low at the moment.

Several CMAS that launched in recent years had notably high interest rates at first, but dropped significantly in mid-2020 after the start of the COVID-19 pandemic. Other things to consider

■ FDIC insurance is usually only available through third-party banks. Since brokerage firms aren’t banks, they typically have to partner with banks to offer FDIC insurance. Brokerages sweep customer funds into Fdic-insured accounts behind the scenes so that they’re covered.

■ CMA customer service is typically online-only because they don’t have branches. As a result, customers who open an account will need to be comfortable with service options that aren’t in person.

Can a cash management account make it easier to invest?

When it comes to investing, timing can be critical. By having all of your accounts in one place, you can take advantage of vital time in the market to potentially earn more money on your cash.

“First and foremost, you are likely setting up a one-stop-shop for yourself so you can bank, save and invest all in one,” said Leah Bourne, by email. Bourne, the managing editor of the investing education website The Money Manual, also added, “Many of the companies that offer these accounts have made the ability to transfer money between accounts really, really easy. If you are actively investing, this is a big pro.”

You also have less to keep track of by keeping your cash accounts and your investment accounts at the same place.