Sweep Accounts

A sweep account is a bank or brokerage arrangement that automatically moves idle cash between a checking account and a higher-yield holding (commonly a money market account or money market fund). Transfers typically occur at the end of each business day: funds above a preset threshold are “swept” into the higher-yield vehicle, and money is returned to the checking account when balances fall below the minimum.

Key points

• Sweep accounts keep cash working by automatically shifting surplus funds into higher-interest, liquid vehicles.
• Common sweep targets: money market deposit accounts, money market mutual funds, high-yield savings, or short-term certificates.
• They save time and reduce cash drag but can carry fees that offset yield gains.
• Both individuals and businesses use sweeps; businesses often rely on them to manage daily cash flow and maximize returns.

How sweep accounts work

1. You set an upper and/or lower balance threshold on a checking or brokerage cash account.
2. At the end of the business day, any balance above the upper threshold is moved into the linked investment vehicle.
3. If the checking balance drops below the lower threshold, funds are swept back from the investment vehicle to restore the minimum.
4. Some arrangements also permit credit sweeps, which automatically apply excess cash to pay down lines of credit.

The automation reduces manual transfers and helps ensure idle cash earns interest while remaining accessible when needed. Depending on the institution and the destination vehicle, returning funds may take a day or more.

Personal vs. business sweep accounts

• Personal/brokerage sweeps: Hold dividends or sale proceeds in a short-term, interest-bearing vehicle until you reinvest or withdraw. Common in brokerage accounts to avoid sitting in non-earning cash.
• Business sweeps: Designed for companies with regular cash inflows and outflows. Businesses can earn interest on excess reserves while keeping sufficient liquidity for payroll, bills, and operations. Credit sweeps can also reduce borrowing costs by automatically applying surplus cash to repay loans.

Benefits

• Increases returns on idle cash without manual transfers.
• Maintains liquidity while earning higher yields than ordinary checking accounts.
• Simplifies cash management for both individuals and businesses.

Costs and risks

• Fees: Institutions may charge flat fees or take a percentage of yields. Fees can reduce or eliminate the net benefit.
• Liquidity delays: Moving funds back to checking can take time depending on the investment vehicle.
• Insurance/credit differences: Money market deposit accounts are typically FDIC-insured; money market mutual funds are not FDIC-insured (they are regulated investment products). Confirm protections before selecting a sweep vehicle.
• Not all sweeps are the same—check the specifics of how and where your money will be held.

How to evaluate a sweep account

When considering a sweep program, review:
* Effective net yield after fees.
* Liquidity and settlement times for returning funds.
* Type of holding (FDIC-insured deposit vs. investment fund).
* Any limits, minimums, or transaction restrictions.
* Whether automatic features (upper/lower thresholds, credit sweeps) match your cash-flow needs.

Bottom line

Sweep accounts are an efficient way to keep short-term cash earning higher returns while preserving liquidity. They are useful for investors and businesses that frequently hold temporary cash balances. Before enrolling, compare yields, fees, liquidity, and account protections to ensure the sweep provides a meaningful net benefit.