Sweep Account

Loading the player...

What is a 'Sweep Account'

A sweep account is a bank account that automatically transfers amounts that exceed, or fall short of, a certain level into a higher interest-earning investment option at the close of each business day. Commonly, the excess cash is swept into money market funds. In a sweep program, a bank's computers analyze customer use of checkable deposits and "sweep" funds into money market deposit accounts.

BREAKING DOWN 'Sweep Account'

Sweeping funds provides the customer with the greatest amount of interest with the minimum amount of personal intervention. That said, sweep accounts were originally devised to get around a government regulation that limited banks from offering interest on commercial checking accounts. As of 2016, some brokerage accounts have similar features that enable investors to gain some additional return for unused cash. Sweep accounts are simple mechanisms that allow any money above or below a set threshold in a checking account to be swept into a better investment vehicle. Sweep accounts were needed historically as federal banking regulations prohibited interest on checking accounts.

Expanded Sweep Account Views

Sweep accounts, whether for business or personal use, provide a way to ensure money is not sitting idly in a low interest account when it could be earning higher interest rates in better liquid cash investment vehicles. These investment vehicles that provide higher interest rates while still offering liquidity include money market mutual funds, high interest investment or savings accounts, and even short-term certificates with 30-, 60- or 90-day maturities for known layovers in investments.

Businesses and individuals need to keep an eye on the costs of sweep accounts, as the benefit from higher returns from investment vehicles outside the checking account can be offset by the fees charged for the account. Many brokerages or banking institutions charge flat fees, while others charge a percentage of the yield.

Sweeps for Individuals

Sweep accounts for individual investors are typically used by brokerages to park money waiting to be reinvested such as dividends, incoming cash deposits and money from sell orders. These funds are typically swept into high interest holding accounts or into money market funds until an investor makes a decision on future investments or until the broker can execute already standing orders within the portfolio.

Sweeps for Businesses

Sweep accounts are a typical business tool, especially for small businesses that rely on daily cash flow but want to maximize earning potential on sitting cash reserves. A business sets a minimum balance for its main checking account, over which any funds are swept into a higher interest investment product. If the balance ever dips below the threshold, the funds are swept back into the checking account from the investment account.

Depending on the institution and investment vehicle, the sweep process is generally set daily from the checking account, while the return of funds can possibly experience delays. With the changes of regulations on checking accounts, some banking institutions also offer high interest rates on amounts over certain balances.

RELATED TERMS
  1. Credit Sweep

    Also known as an automated credit sweep, this term refers to ...
  2. Money Market Account

    An interest-bearing account that typically pays a higher interest ...
  3. Automatic Transfer Of Funds

    A standing banking arrangement whereby transfers from a customer's ...
  4. Checking Account

    A transactional deposit account held at a financial institution ...
  5. Linked Savings Account

    Any type of bank savings account that is linked by account number ...
  6. Automatic Transfer Service - ATS

    A banking service offered to customers that has both a general ...
Related Articles
  1. ETFs & Mutual Funds

    How Does a Sweep Account Work?

    A sweep account is a banking arrangement that transfers – or sweeps – balances from one account into an investment account at the close of each day.
  2. Personal Finance

    Explaining Checking Accounts

    A checking account is an account at a financial institution, usually a bank, that allows for deposits and withdrawals.
  3. Markets

    Demystification Of Bank Accounts

    Find out which type of account suits your specific needs.
  4. Managing Wealth

    10 Checking Accounts the Ultra Rich Use

    These accounts – created specifically for the wealthy – come with special extras such as personal bankers, waived fees and the option of placing trades.
  5. Personal Finance

    Best Checking Accounts For Small Businesses

    What you need to know to choose the best checking account for your small business – and where to look.
  6. ETFs & Mutual Funds

    Savings Accounts Not Always The Best Place For Cash Assets

    Money market funds may be all that stands between you and increasing your wealth.
  7. Personal Finance

    Understanding Savings Accounts

    A deposit account held at a bank or other financial institution that provides principal security and a modest interest rate.
  8. Markets

    The Best Banking Services for Your Business

    Find out which banking services can offer a small business the best opportunities for reducing cost and fraud while managing its cash flow more efficiently.
  9. Personal Finance

    Money Market Accounts with the Highest Interest Rates

    Money market savings accounts can offer higher interest rates than regular or even high-yield bank savings accounts – and perks like these.
  10. Personal Finance

    The 5 Best Alternatives to Bank Saving Accounts

    Find out about some of the most profitable available alternatives to depositing money in a traditional bank passbook savings account.
RELATED FAQS
  1. What determines the interest rate in my money market account?

    Placing funds in a money market account may provide a higher interest rate than a savings account due to the underlying securities ... Read Answer >>
  2. How safe are money market accounts?

    Learn the difference between a money market account and a money market fund. Both savings vehicles are relatively safe, but ... Read Answer >>
  3. What are the risks involved in keeping my money in a money market account?

    Setting aside funds in a money market account can be a safe investment strategy, but investors should be aware of the risks ... Read Answer >>
  4. Does it make sense for me to have a money market account if I don't want to buy any ...

    Saving funds within a money market account or mutual fund does not have to be limited to those wanting to buy or sell securities ... Read Answer >>
  5. How liquid are money market accounts?

    Understand the characteristics that distinguish money market accounts from checking, savings account and money market funds ... Read Answer >>
  6. How do you calculate payback period using Excel?

    Understand the various fees that can be assessed on a personal or business checking account, and learn methods to avoid being ... Read Answer >>
Hot Definitions
  1. Put Option

    An option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying security ...
  2. Frexit

    Frexit – short for "French exit" – is a French spinoff of the term Brexit, which emerged when the United Kingdom voted to ...
  3. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  4. GBP

    The abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories ...
  5. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  6. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
Trading Center