What is a Cash Account?

Malcolm Tatum

Cash accounts are brokerage accounts that require the client to render full payment for a transaction by the agreed upon settlement date. The nature of this type of account means that the customer is not granted the privilege of buying on margin, or using borrowed money secured through the broker in order to purchase securities. Sometimes referred to as a special cash account, these cash only investment accounts are often used for both retirement nest eggs and trusts for minor children.

Cash accounts are commonly established to create a secure retirement fund.
Cash accounts are commonly established to create a secure retirement fund.

The guidelines for the structure and administration of a cash account in the US are set by what is known as Regulation T. Essentially, Regulation T is mainly concerned with setting the percentages of deposits that must be present in a margin account in order for the investor to buy on margin or for the broker to solicit loans for funds to be placed in a brokerage account. Regulation T does not allow either of these functions for this type of account.

A cash account is an excellent option when the goal is to establish a secure nest egg for retirement. Perhaps the best example of one for this purpose is the Individual Retirement Account. An IRA is completely funded with cash deposits that are then invested on the part of the broker. Generally, the investments that are undertaken with the funds in an IRA are low risk in nature, guaranteeing a modest but consistent pattern of growth.

Trust accounts for minor children and other dependents are also common applications. Parents who wish to provide future financial stability for their children in the event that one or both parents pass away often includes the ability of an administrator or legal guardian to access and use the funds until the children are of legal age. The structure of the account normally sets restrictions on how the funds may be used, and how much of the principal balance of the account can be withdrawn during a given calendar year.

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SauteePan-Another cash account that might be viable for as a retirement account is annuities. Annuities are cash investments offered my insurance companies.

They are usually for terms of five to seven years and have a fixed yield component to them. The first two years offer an above market rate of return in terms of the yield offered, but after that the annuity will offer a minimum yield.

For example, if you initial signup for a five year annuity and invest $75,000 the initial two years might offer a yield of 3%.

However, the minimum yield for the remaining three years is 1% which means that the company is only guaranteeing that you will receive 1% after the second year.

Annuities should only be used for retirement purposes because if you withdraw an annuity or choose not to renew the annuity after the term is up, you will be subjected to double taxation.

The money will be taxed as ordinary income and you will also pay an additional tax of 10% for early withdrawal. You really have to be 59 ½ in order to withdraw the money without penalty.


Cafe41-Some people have prepaid credit cards. Prepaid credit cards are normally offered to people that have a poor credit rating and have to use a bank account with the exact credit limit in order to be able to use their credit card.

This ensures that the debt will be paid because the bank account is frozen and the bank can access the funds if necessary.

This is also a great way for someone with no credit or someone with bad credit to rebuild their credit history with no risk to the banks.

Many of these cash card accounts have low balances most no more than $500. Some people prefer to use their debit cash account. Using the debit cash card takes the funds immediately from the checking account so it is essentially like paying cash, but the nice thing is that you do not have to carry around large sums of cash with you.

You can also get your cash balance account statement online so that you can see what your cash account balance is.


Anon27936- A cash account is really a money market or certificate of deposit that has liquidity.

A cash deposit account like this often pays low yields and it is taxable as well. It is better to invest in Treasury Bills which are tax free for slightly better return on your investment.

There are some high yield online cash accounts offered by HSBC and ING but these accounts do have some restrictions.

For example, most of these accounts offer limited teller service and some do not allow teller service at all.

The banking is to be done strictly online or through an ATM which is why they can offer such higher yields. If you like to interact with the banking staff, then these online accounts are not for you.


any input on dealing with stifel nicolaus? we have transferred our iras from Wachovia and there are so many forms to fill out?

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