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What is a Sweep Account & How Will it Benefit My Business?

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There are many banking products and services for business owners to consider in order to maximize efficiency and their finances. One product that accomplishes both of those goals is a sweep account, which offers many benefits for businesses of all sizes.

What is a Sweep Account?

An account that automatically “sweeps” funds exceeding a predetermined balance into an investment account, then automatically “sweeps” them back into checking when balances drop below a predetermined minimum. This provides account holders with the highest amount of interest without having to frequently move funds between accounts manually.

Sweep Accounts for Business

Businesses may use sweep accounts in different ways depending on the business’ goals and the types of business activities. Business sweep accounts are generally used in one of two ways – either to maximize earnings in an interest-bearing account or to pay down a loan to reduce interest expense. Typically, businesses link sweep accounts to the general operating account. Then, the business will determine a target balance, and if the account goes over that balance, it will automatically sweep the excess funds into its investment account to earn additional interest or into its loan account so it will reduce interest expense. This is all automated, so the account owner doesn’t have to take the time to manually move funds or monitor account balances in order to maximize their finances.

Is a Cash Sweep Account Right for My Business?

Sweep accounts are most relevant for companies that maintain larger balances that require funds to be moved in an automated fashion. Any business or industry may find sweep accounts helpful. A few industries where these accounts are very prevalent include the construction industry and attorneys or law firms. Sweep accounts generally are not necessary for individuals.

Sweep Account Benefits

There are many ways a business can benefit from a sweep account. The biggest benefits of a sweep bank account include:

Easy to set up: These accounts are not complex and can be set up easily with the help of a banker. There are not many requirements or steps needed to open a sweep account.

Saves Time: Business owners are busy and do not have time to manually move funds or monitor balances. Sweep accounts help businesses maximize finances with little time or effort required.

Lets owners focus on their business: Business owners juggle many roles and responsibilities with their business and do not have time to waste. Sweep accounts are automated so business owners can focus on the important tasks instead of monitoring funds.

Maximizes interest earned: Sweep bank accounts allow businesses to maximize finances by earning interest on funds that would otherwise be wasted sitting in an operating account.

Reduces interest expenses: For businesses that have loans, cash sweep accounts help pay off the loan faster and reduce interest expenses by automatically paying down the loan with excess funds instead of those funds sitting in an operating account.

How to Find the Right Bank for Sweep Accounts

Most banks, with the exception of some very small banks, offer sweep accounts, which are fairly standard products from bank to bank. However, all banks are not created equal, and business owners need to find the right bank for their business. For sweep accounts, the main difference between banks that offer this product are the fees they apply to the account. Some banks, especially larger, national banks, charge high fees for sweep accounts. Always ask your banker what the fees associated with any product are before signing up for it.

Business owners should also look for banks that tailor products and services to their customers, so they are getting only what they need and what is right for their business. Many banks push extra products or services on customers, so make sure to bank with someone that’s trustworthy and is looking out for the best interest of the business. Banks that take the time to find out a business’ unique needs and goals and work with business owners to develop the best plan and mix of products and services will be most effective for businesses.

Find out if sweep accounts are right for your business. Contact our cash management professionals (David West: david.west@reverebank.com) to discuss your goals and sweep account rates.

 

This publication does not constitute legal, accounting or other professional advice. Although it is intended to be accurate, neither the publisher nor any other party assumes liability for loss or damage due to reliance on this material. Websites not belonging to this organization are provided for information only. No endorsement is implied.

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