Some businesses also utilize sweep accounts to maintain a zero balance account, which is a bank account that intentionally keeps a balance of $0. They allow companies to earn interest on excess cash reserves while also ensuring that they have enough cash on hand to pay for business expenses. Sweep accounts are commonly used by businesses, especially by small businesses that have large cash flows. If the balance of the account ever dips below a certain threshold, the funds are then swept back into the checking account from the investment account. With a business sweep account, a business sets a minimum balance for its main checking account, with any excess funds being swept into a higher-interest investment account. These funds are typically swept into a high-interest holding account such as a money market mutual fund until the investor can make a decision on future investments or until the broker can execute already standing orders within the investor’s existing portfolio. For example, a sweep account might move excess cash to a money market fund, where it will earn greater returns than it would by sitting in an ordinary bank account.
Personal sweep accounts are typically used by brokerages to store client funds until the account holder decides how they want to invest their money. Although many online brokerages have adopted a $0 commission fee model, they may still charge fees for sweep accounts.Īdditionally, you’ll also want to ask when automatic transfers are triggered and how the money in the sweep account is invested. You’ll want to review the fine print on your sweep account so that you understand what you’ll have to pay to maintain it.
If you’re interested in opening a sweep account, first check to see if they are offered by your bank or brokerage firm. This can help make paying off debt easier. The same process as described above applies, except that instead of the bank or brokerage account putting excess funds into an investment account, the extra money in your checking account will be put toward loan payments. Sweep accounts can also be used to pay back loans instead of earn interest. They can also work in the other direction, whereby the bank moves funds from an investment account to a checking account when the owner’s balance falls below a certain amount. Sweep accounts are used to “sweep” excess cash into a money market account, where it will earn more interest than it would in a normal bank account. A sweep account may also transfer excess funds toward loan payments. The sweep occurs at the close of each business day. By transferring unused funds into a high-yield savings or investment account at the end of each business day, your money can grow without constant oversight or management on your part.Ī sweep account is a bank or brokerage account that automatically transfers funds that exceed a certain threshold into investment accounts that earn a higher level of interest, such as money market deposit accounts or a money market mutual fund. You might be looking for ways to make your money work for you outside of a typical checking account - especially if you’re one of the many people who are unable to afford the advice of a financial advisor or a minimum investment in the stock market.Ī sweep account helps do some of that work by allowing you to earn interest on money that you’re not actively saving or investing. Managing your personal finances can be a frustrating experience that leaves you fearing for your financial future. There are both personal sweep accounts and business sweep accounts. Sweep accounts offer a hands-off investment vehicle that can ensure your money is earning a return. They can also be used to pay back loans or as a way of moving money from an investment account to a checking account when the balance falls below a certain amount. Sweep accounts are bank or brokerage accounts that automatically transfer money that exceeds a certain threshold into an account that earns a higher level of interest.