Sweep Account

Did you know that federal law prohibits banks from offering interest on checking accounts for individuals, small businesses, and corporations? It’s probably not an obvious or well-known fact to most laypeople, but this is the way it’s been for years. In order to get around that prohibition on offering interest on checking accounts, banks have come up with “sweep accounts” to offer to their customers, as a way of potentially increasing their returns on the balance in their checking accounts. After all, who doesn’t want to be maximizing their financial picture in any and every possible way? It’s just common sense.

If you have a sweep account, everyday, at the end of the day, the interest you earn on the money in your account is “swept” up and placed into another, separate fund—usually a money market, or a CD, or other investment plan that’s easy to liquidate. This way, you’re making money on the interest you’re earning on the balance in your checking account.

People and businesses that have opted to start a sweep account will be required to maintain a certain daily balance average in their checking accounts. If you go below that agreed-upon balance, money will be taken out of your investments (the aforementioned money market fund, or CD, or what-have-you) and put back into your checking account in order to get your balance up to the required minimum.

While it may sound complicated, it’s a tactic offered by many banks to both individuals and businesses. If the idea interests you, you should sit down with a qualified banking professional to learn all about it and your other financial options as well. In these times of intense financial instability we all need to take close, active, involved looks at our financial situation to ensure that we are safe, happy and thriving.