Benefits of Sweep Accounts

A sweep account efficiently moves excess funds between a checking account and a higher interest-earning account at the end of each business day. This ensures that money is not just sitting in the bank and is working to earn more interest. If there is no excess, the funds remain in the checking account.

Understanding Sweep Accounts

Checking accounts are convenient for accessing money but typically do not offer interest. A sweep account can be paired with a bank or brokerage account to automatically transfer excess funds into a higher interest-earning investment option, such as a money market mutual fund, at the end of each business day. This transfer can happen internally within the same institution or externally to another account.

How Sweep Accounts Function

A sweep account works by automatically transferring funds between a checking account and an investment option that earns higher interest. You can set a minimum sweep amount, and any excess funds above that threshold at the end of the day will be swept into the higher interest-earning account. The funds will then be available to earn more interest until needed for expenses.

Benefits and Drawbacks of Sweep Accounts

Pros of sweep accounts include the ability to earn interest on idle funds and the option to use excess money to pay off loans. However, there may be fees associated with sweep accounts, and certain investment options may not be FDIC insured. It's important to weigh the benefits and drawbacks before deciding on a sweep account.