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What Exactly Are Sweep Accounts & Why Use Them?

what exactly are sweep accounts why use them 2

 A sweep account is a brokerage or a bank account that automatically transfers money that exceeds or falls short of a specific threshold at the end of each business day into a better interest-earning investment alternative. Often, surplus cash is invested in a money market fund.

Utilizing a sweep vehicle, such as a sweep fund, works by offering the customer the most amount of interest with the least amount of personal interaction by putting money into a high-interest account at the end of the day. A sweep program analyzes a bank’s customers’ use of checkable deposits and sweeps assets into money market deposit accounts.

What are Sweep Accounts?

Several brokerage accounts offer comparable features that allow investors to earn a return on unused funds. Sweep accounts are simple systems that allow any money in a checking account that is over or below a certain threshold to be swept into a superior investment vehicle. Sweep accounts were traditionally required because federal banking restrictions banned checking account interest.

Sweep accounts, whether for company use or personal usage, allow you to guarantee that your money is not lying idle in a low-interest account when it may be earning greater interest rates in superior liquid cash investment vehicles. High-interest investment or savings accounts, money market mutual funds, and even short-term certificates are examples of investment instruments that offer greater interest rates while still providing liquidity.

what exactly are sweep accounts why use them

Why Use Sweep Accounts?

Individual sweeps are commonly employed by brokerages to hold customer assets until the owner chooses how to invest the cash. A sweep account, for example, may direct the extra cash to a money market fund, where it will earn higher returns than a regular checking account. Small businesses with high cash flows frequently use business sweep accounts. They enable the corporation to earn interest on surplus cash reserves while still having enough cash on hand to cover operational costs.

Sweep accounts, whether for company use or personal use, are a simple method to guarantee that money is working for you rather than resting in a low-interest bank account. This is why most people use them.

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