Finance term
Sweep Account
Also known as: cash sweep, sweep service, overnight sweep
Definition
A sweep account is a bank service that automatically transfers excess funds from a business checking account into a higher-yield account (money market fund or MMA) at the end of each business day — then sweeps the funds back when needed to cover disbursements. Maximizes yield on idle cash with no manual action.
Detailed explanation
A sweep account automates cash management: the business defines a 'target balance' to maintain in checking (enough to cover anticipated disbursements for 1-3 days). Each evening, any balance above the target is swept into an investment vehicle — typically a money market fund or a bank MMA — where it earns overnight yield. Each morning before the business opens, the required funds sweep back into checking.
Two main sweep structures: (1) Bank sweep to internal MMA — simpler, typically available at mid-size banks, yields tied to the bank's savings rates. (2) Sweep to money market fund — sweeps into a third-party money market mutual fund (often a government or Treasury fund), typically higher yield than internal MMA but with SEC fund risk disclosures. Note: money market funds are not FDIC-insured; they are SEC-regulated investment products. Most use government/Treasury fund structures with very low but non-zero risk.
Sweep accounts are primarily a tool for businesses with significant idle checking balances — if average daily balance is below $25,000-50,000, the yield gained may not exceed the monthly fee charged by the bank for the sweep service. As a rule of thumb: if you hold $100K+ in average daily checking balance, a sweep account likely pays for itself.
For lending: a history of sweep-account usage demonstrates financial sophistication and cash-management discipline, which can positively influence bank underwriting decisions. Lenders view it as evidence that the business actively manages liquidity.
◈ Worked example
- Distribution company: target balance $50K in checking; $175K excess swept nightly into Treasury MMF at 5.0% APY — earns ~$8,750/year on idle cash
- Medical practice: sweep service fee $30/month; average sweep balance $80K at 4.5% APY earns ~$3,600/year net — strong ROI on $360/year service cost
- Sweep to government MMF: not FDIC-insured, but backed by short-term U.S. Treasury and government agency securities — stable NAV, near-zero credit risk
Common questions
The most-asked questions about Sweep Account — answered straightforwardly.
Is a sweep account FDIC insured? +
It depends on where the funds are swept. Sweeps to a bank's own MMA deposit account retain FDIC coverage up to $250,000. Sweeps to money market mutual funds are NOT FDIC insured — they are SEC-regulated investment products. Government/Treasury money market funds carry very low risk but are not guaranteed. Ask your bank specifically: 'Where do swept funds go, and is that FDIC insured?'
How much idle cash do I need to justify a sweep account? +
Bank sweep services typically cost $20-50/month. At 4.5% APY, you need roughly $7,000-13,000 in average daily swept balance just to break even on the service fee. For businesses with $50,000+ in average excess checking balance, a sweep account pays for itself in the first week. Below $25,000-30,000 in typical idle balance, the math is less compelling.
Does a sweep account affect my business credit? +
Not directly — sweep accounts are an internal cash-management tool and are not reported to business credit bureaus. However, maintaining a healthy average daily balance (whether swept or not) improves your bank relationship and supports underwriting when you apply for a business line of credit or term loan.
Further reading
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