What Is a Sweep Account? Your Guide To Making Idle Cash Work

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To keep your spare cash growing, consider placing it in a high-yield savings account or investing in securities with strong return potential. Letting your money sit idle is a missed opportunity to build wealth. A sweep account helps you avoid those gaps by automatically putting your cash to work. But what is a sweep account and how does it work? Read on to find out.

What Is a Sweep Account?

A sweep account is a type of bank or brokerage account that automatically moves unused funds into a higher-yielding account or conservative investment. These accounts are designed to maximize earnings on idle cash without requiring day-to-day management from the account holder.

Good To Know

Banks may sweep money into a high-yield savings or money market account, while brokerages may move uninvested funds into interest-bearing accounts or money market funds.

When needed, the money is automatically transferred back.

How Sweep Accounts Work

Sweep accounts automatically transfer excess funds from your checking account or brokerage account into a higher-yielding account where it earns interest. You set a threshold for your main account — anything over that is “swept” into the designated account.

You can also designate loan accounts for weeps, helping to reduce principal and interest charges.

Bank Sweep Accounts

Banks often offer sweep accounts to business customers, though personal accounts may also be eligible. Here’s how it works:

• Funds beyond a specified minimum balance are moved into a sweep account daily.
• The sweep account could be a high-yield savings account or a money market account.
• If linked to a loan account, excess cash may be used to reduce your loan balance.

Example of a Bank Sweep Account

You receive weekly paychecks via direct deposits into your checking account. You also have a line of credit and a savings account at the same bank. You set your checking account’s minimum balance to $1,000.

Each day, any funds over $1,000 are swept into either your savings or loan account.

If your checking drops below $1,000, the sweep account replenishes it automatically.

Brokerage Sweep Accounts

Investment brokerage sweep accounts work similarly to bank sweep accounts, but instead of sweeping excess money from a checking account, they sweep uninvested funds from a brokerage cash account.

• Deposits go into a cash account, not directly into investments.
• Idle funds are swept into FDIC-insured accounts or money market funds.
• When you want to invest your money, you can do so — it’ll come out of the sweep account automatically.

Some brokerages divide deposits across multiple partner banks to extend FDIC coverage. For example, Wells Fargo’s sweep program insures up to $1.25 million by spreading funds across five banks.

Example of a Brokerage Sweep Account

Say you transfer $5,000 to your Fidelity brokerage account. You’re not ready to invest yet, but don’t want that money sitting idle.

Fidelity automatically sweeps it into a partner bank account that earns interest.

When you decide to invest, the money is transferred back with no action needed on your part.

Benefits of Sweep Accounts

Here are a few benefits of sweep accounts to know:

• Get the most out of your money by automatically transferring funds to interest-earning accounts.
• Effectively manage idle cash, reducing the risk of leaving it uninvested.
• Continue to have easy access to your funds whenever you need them.

How To Set Up a Sweep Account: 4-Step Guide

Setting up a sweep account is simple. You can follow these steps:

1. Check the requirements with your bank or brokerage.
2. Follow their prompts to open the account.
3. Once open, you can connect all your accounts for automatic transfers.
4. Tailor your settings to match your financial goals and ensure your cash is working efficiently.

Sweep Account Risks To Know

While sweep accounts can be a great tool for cash management, they come with some risks.

• Be aware of potential fees and minimum balance requirements that might affect your returns.
• To keep your funds safe, check if the account is FDIC-insured or offers other protections.

Sweep Account Taxes

Earnings from sweep accounts — including interest and dividends — are taxable and must be reported. Tax treatment depends on the account type:

• Bank sweeps typically generate taxable interest income.
• Brokerage sweeps may result in dividends or capital gains.

Understanding the difference helps you stay on top of your taxes and avoid surprises.

Is a Sweep Account Right for You?

Sweep accounts are ideal for anyone who wants to keep cash working without daily management.

• Checking sweep accounts: These are an automated savings strategy that you essentially set and forget. Unneeded funds earn interest but are available to you whenever you need them.
• Investment sweep accounts: Let you deposit money into your brokerage account, where you won’t be tempted to tap into it for something other than investing. This gives you time to research how to invest the funds.

That said, there are also a couple of drawbacks. Money market fund sweep accounts are only SIPC-insured if the brokerage is a member. Otherwise, you could lose your money if the brokerage goes under.

Additionally, whether you’re using a sweep account for idle checking account funds or a brokerage cash account, be prepared for potential fees associated with the service.

For many consumers, a sweep account is a safe and easy way to earn extra interest on your idle money. Just be sure the fees won’t cancel out the gains.

Elizabeth Constantineau contributed to the reporting for this article.

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