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What to know about cash management accounts versus high-yield savings accounts


Financial app Robinhood introduced its new cash management account this week, offering an initial 1.8% APY on savings.

This is the second attempt for the company, after a botched rollout of a similar savings account-type product last year. Now, Robinhood's Cash Management Account offers FDIC insurance up to $1.25 million via partner banks that will actually hold customers' funds.

The company is one on a growing list of non-bank financial companies that offer these types of pseudo-savings accounts to users, joining robo-advisors like Wealthfront and Betterment.

And while they typically offer competitive interest rates well above the 0.09% nation-wide average for savings accounts, they are not the same as savings accounts offered by banks. Here's what consumers need to know.

Cash management account pros and cons

Cash management accounts are offered by non-bank financial companies, like brokerages or robo-advisors. Once cash is deposited, it is then moved to a savings account at a partner bank. In Robinhood's case, those partner banks include Citibank, U.S. Bank and Wells Fargo, among others.

Fintech companies have begun offering the accounts, and higher interest rates, in order to entice savers to use their other products, like a brokerage account. The companies are counting on the ability to keep all of your accounts in the same place, easily accessible all at once via an app, as enticing enough to grow their customer base.

Cash management accounts also typically have lower fees than a traditional bank account might. Robinhood's has no account minimums, no transfer fees and no foreign transaction fees.

Suze Orman says this mental shift is the key to saving money
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A high-yield savings account, on the other hand, is offered at chartered banks like Ally or Vio Bank. Your funds are held by the institutions, which provide FDIC insurance and interest and, typically, in-person customer service (though Ally is an online bank). Some banks only offer higher yields on high balances, so that is something to research before opening an account.

The distinction between the two might seem minimal, but it's important, Matthew Goldberg, analyst at, told CNBC Make It previously. Savers need to be aware of which partner bank is holding their money, and monitor their assets. While Robinhood says cash up to $1.25 million, cumulatively, is insured, FDIC only provides insurance up to $250,000 per institution, meaning if you have more cash than that you'll want it held at more than one bank. That is likely not a huge problem for many savers, but still, you'll want to know where your cash is actually being held.

It's doubly important to understand that it may take a day or two for your money to be insured, as it's transferred to the partner banks, Goldberg said. If you deposit cash into one of the accounts, it's wise to check in with Robinhood, Wealthfront or whichever company you use to ensure the money was properly transferred.

It might also take a day or two for you to be able to withdraw your money from the accounts, unlike with a traditional savings account, because it will need to be transferred from the partner bank. That said, the Robinhood account does come with a debit card issued by Sutton Bank that can be used to withdraw cash from a network of 75,000 fee-free ATMs.

Both types of accounts offer variable interest rates, meaning they can change from day to day. Savings rates have dropped a few times this year, as the Federal Reserve has cut rates more than once.

Whether you choose a cash management account or a traditional savings account, making sure you're getting a high interest rate is a smart move.

Robinhood also announced this week it will begin allowing investors to buy portions of shares of individual stocks and ETFs.

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Extreme savers refuse to waste money on these things
Extreme savers refuse to waste money on these things