Fidelity Cash Management Account – Is It Worth It?
Recently I opened up a Fidelity Cash Management account (CMA) and I have no regrets. This account offers everything that a normal checking account provides with the added benefit of a high interest rate. I think it’s fair to say that opening this account was one of the wisest financial decisions I’ve made all year and it will pay dividends for me in the long run.
Overview of Fidelity Cash Management Account
What is a Fidelity cash management account?
A CMA combines the functions of a traditional checking account and savings account into a single account. The Fidelity CMA gives you access to what a usual CMA provides, but also some extra benefits, such as a debit card, free checkbooks and investing capability.
Is Fidelity Cash Management a checking account?
Using a duck analogy, A CMA walks like a checking account and quacks like a checking account so it’s basically a checking account. In this blog I like to refer to it as a checking account because, It behaves exactly like a checking account while at the same time offering so much more.
A What are the risks of a cash management account?
Fidelity gives you two options for how your money generates interest in the account. Both options are low risk.
The first option is the Fidelity® Government Money Market Fund (SPAXX). A money market fund (or account) can be thought of as a fund that invests in short term investments such as Certificates of Deposits, US government repurchase agreements, US Treasury bills and US Treasury coupons. The upside to choosing SPAXX is that it has much higher interest than the alternative but the downside is that the assets that generate this high yield are not insured.
The second option is the FDIC-Insured Deposit Sweep Program. It is the option I prefer because it is insured by FDIC insurance while at the same time while still providing an incredible yield for a checking-like account. In case you didn’t know, an FDIC insured account protects the account holder in a case where a bank fails. If a bank does fail and the account holder’s funds are in an FDIC insured account, the account holder will get all their money back. As of this writing cash up to 5 million dollars is insured by FDIC.
Using Fidelity Cash Management Account
Managing Your Account Online
A Fidelity CMA can be accessed online or with the Fidelity investments app. Both platforms are very user friendly and intuitive to use. You can check your balance, pay bills and view transactions with ease.
Depositing and Withdrawing Funds
The conventional way funds come in and out of the account are fully electronic. If you receive a physical check this can be deposited to the account though the fidelity investments app. You simply need to scan the front and rear of the check and enter the amount that is on the check. One downside of tha Fidelity CMA is the inability to directly deposit cash into the account. If you receive cash it may be a good idea to set up a different account that is able to accept cash and then transfer this amount to the fidelity CMA.
Investing Money With a Cash Management Account
One big benefit of having a Cash management account is the ability to directly invest in ETFs and individual stocks. A nice feature Fidelity provides, which many other online brokerages don’t provide, is the ability to purchase fractional shares of stocks. For example, If a stock was worth $200 and I only have $100 with Fidelity I can invest the full $100 into the stock even though I don’t have the full $200 to buy a single share.
Frequently Asked Questions
Here is a video that also covers some common questions:
Does Fidelity CMA have direct deposit?
Yes, you can direct deposit into a Fidelity CMA. This is useful, for example, if you like to get paid by an employer.
Can you withdraw cash from a Fidelity cash management account?
The Fidelity CMA allows you to withdraw money from ATM’s. Any fees incurred will automatically be refunded to you. If you are overseas, Fidelity does not charge any foreign transaction fees when withdrawing money.
What is the Fidelity CMA interest rate?
At the time that this article was written the interest rate is 2.47% for the FDIC-Insured Deposit Sweep Program and 4.47% for the Fidelity Government Money Market Fund. These rates will fluctuate over time.
Can you Pay bills with a Fidelity CMA?
Yes, you can pay bills either through an ACH transfer, which uses a routing and checking number or using the debit card provided with the account.
What is the minimum balance for a Fidelity CMA?
There is no minimum balance needed for having a Fidelity CMA. There are also no fees for having a little or no balance in the account.
Is a cash management account taxable?
As of this writing, If you earn more than $10 in interest in a calendar year Fidelity will provide a 1099-INT for paying taxes on the amount earned.
Final Thoughts on the Fidelity Cash Management Account
Personally my views on checking and savings accounts are the same. I try to have as little money as I can in liquid cash. For me this usually doesn’t exceed $5,000.
Having some money in liquid cash is obviously very important to pay bills and cover expenses. However, the problem with traditional checking accounts is that they hardly have interest, an interest rate of 0.01% is not uncommon. The stock market on the other hand, you can expect to receive anywhere between 5-12% return on the money invested. A Fidelity CMA provides a nice balance between these two worlds.
