What is a Sweep?
Sweep is a term that refers to the process of moving or cleaning something away in a particular direction or with a sweeping motion. In the financial world, a sweep account is a type of bank account that automatically transfers excess funds into a higher interest-earning investment option.
Types of Sweeps
There are two main types of sweeps:
- Automatic Sweep: Automatically transfers excess funds from a checking account into a higher interest-earning account, such as a money market account.
- Manual Sweep: Requires manual intervention to move excess funds from one account to another, typically at the end of the day.
Examples of Sweep Accounts
For example, if you have $2,000 in your checking account and only need $1,000 for your daily expenses, the extra $1,000 would be automatically swept into a money market account where it can earn a higher interest rate. This helps maximize the return on your idle cash.
Benefits of Sweep Accounts
Some of the benefits of sweep accounts include:
- Maximizing Interest: By automatically moving excess funds into higher interest-earning accounts, sweep accounts help you earn more on your idle cash.
- Convenience: Sweep accounts eliminate the need for manual transfers, making it easier to manage your finances.
- Overdraft Protection: If you accidentally overspend from your checking account, the excess funds in your sweep account can automatically be moved back to cover the shortfall.
Case Study: XYZ Corporation
XYZ Corporation implemented a sweep account for their business checking account and saw a significant increase in their interest earnings. By automatically sweeping excess funds into a higher interest-earning account, they were able to maximize their returns without any additional effort.
Statistics on Sweep Accounts
According to a survey conducted by the Federal Reserve, sweep accounts are becoming increasingly popular among both individuals and businesses. In fact, 78% of banks now offer sweep account services to their customers.
