Can a cash management platform work as a savings account?

It’s no secret that consumers are exploring cash management platforms (CMPs) as an alternative to traditional savings accounts, but are they actually a good substitute and who might benefit from them most? 

In this article, we’ll take a look at whether cash management platforms can replace savings accounts for some savers, what advantages and limitations they might have and the type of consumer they’re suitable for.  

Read on or skip to a section below:  

• What is a cash management platform? 
• Advantages of using a cash management platform as a savings account 
• Risks and limitations 
• Who could benefit from a cash management platform? 
• Choosing between a cash management platform and a savings account 
• The bottom line 

What is a cash management platform? 

Cash management platforms are a type of modern financial service designed to optimise how individuals or businesses earn interest and manage and save their cash. 

Usually, these platforms offer users the opportunity to access numerous accounts and financial accounts (often dozens) and move their money easily between the available products. 

Cash management platforms differ from traditional savings accounts largely due to their structure. For example, these platforms act as intermediaries to multiple savings options or money market funds. 

They’re also more usually used to make the most of liquid cash, rather than storing long-term investments. 

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Also see: Is a cash management platform worth it?

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Advantages of using a cash management platform as a savings account 

Cash management platforms offer several benefits over traditional savings accounts, making them an attractive option for savers, including: 

• Higher interest rates: CMPs provide access to competitive rates by partnering with multiple financial institutions, often outperforming the returns from high street banks. 
• Simplified rate access: These platforms streamline the process of finding and allocating funds to the best available rates, eliminating the hassle of needing to switch banks and fill out lengthy sign-up forms. 
• Flexibility and convenience: Users can centralise the management of their savings, holding funds in FSCS-protected accounts or higher-yield investments, all in one place. 
• Additional features: Many CMPs also include tools for financial planning, integration with wealth management and perks like spending analysis or rewards. 

With better rates, convenience and a whole host of added features, cash management platforms definitely something to consider for savers looking to optimise their cash. 

Risks and limitations 

It’s true that cash management platforms do have their advantages over traditional savings accounts. However, that doesn’t mean they don’t come with their own set of risks and limitations.  

For one, not all the options offered by CMPs allow for FSCS protection. While most do, if you choose to use money market funds, you won’t be covered with this type of protection. 

Additionally, the interest yielded on each account is typically determined by the Bank of England base rate and market fluctuations (unless you choose a fixed-rate product). This means that while your interest rate could be great for a while, it might not always be that way.  

There’s also a greater level of complexity associated with these platforms and therefore they might be suited more to those with some financial knowledge or time to invest in managing their money. 

Who could benefit from a cash management platform? 

Cash management platforms can typically be used by anyone over the age of 18, whether that be an individual, a financial advisor or a business.  

However, not everyone will benefit from this type of tool to the same extent. So, who should consider it? 

This type of savings method is going to benefit high net-worth individuals who are managing large cash savings, investors looking for liquidity while they also earn a return and business owners looking to derive interest from their funds.  

Savvy savers who are informed about the world of finance (or those with the time and motivation to learn) can also make great returns on their money using a CMP.  

However, if you’re an individual who’s prioritising simplicity, or your risk-averse and looking for guaranteed safety, you might find you’ll benefit more from traditional banking.  

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Also see: How to invest 20K

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Choosing between a cash management platform and a savings account 

If you’re still unsure as to whether a cash management tool is right for you, or if you should just stick to traditional savings accounts, here are some things to consider.  

• Are you comfortable with potential yield variability? 
• Can you handle a small amount of risk?  
• Are you looking to earn interest or a larger sum of money? 

If your answer to these questions is yes, then it might be time to sign up for a CMP. However, if you answered no to some or all of these, traditional savings accounts might be the way to go.

Or, if you sit somewhere in the middle, why not consider a blended approach? Splitting your funds between a high-interest savings account and CMP to maximise returns while maintaining security is also an option to consider. 

The bottom line 

Cash management platforms offer a range of benefits (such as competitive interest rates and convenience) but that doesn’t mean everyone will reap these advantages equally as they also come with some limitations. 

And, the decision on whether or not to use this type of tool largely depends on your financial goals, risk tolerance, and need for simplicity or diversification.