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A sweep account is a bank or brokerage account that automatically moves excess cash into a higher-yielding investment when the balance exceeds a set threshold, and pulls that cash back when the balance drops below the minimum. The movement happens overnight or at the end of each business day without any manual intervention. At banks, this typically means moving excess funds into a money market account or a repurchase agreement. At brokerages, it usually means moving uninvested cash into a money market fund or an affiliated bank deposit account.
Think of a sweep account like a smart thermostat for your cash: it constantly adjusts to keep balances in the optimal range without you doing anything.
For businesses, idle cash in a checking account earns nothing. A sweep account ensures that any cash above the operating balance goes to work immediately. At the end of each business day, the bank's system checks the account balance, moves any surplus into a higher-yielding vehicle, and returns those funds the next morning when the checking account needs them for operations.
In the U.S., there is a legal restriction on paying interest on business checking accounts. Sweep accounts were originally invented as a workaround: the business checking account technically earns no interest, but the swept funds in the overnight investment account do. The net effect is that the business earns a return on its daily cash balance.
Sweep accounts come in different structures depending on the yield target and the risk tolerance of the account holder.
At brokerage firms, sweep accounts handle uninvested cash between trades. When you sell a security, the proceeds sweep into a default cash vehicle until you deploy the capital into another investment. At firms like Fidelity, the default sweep is typically a money market fund paying a competitive yield. At major full-service brokerages, the default sweep has often been a low-yield bank deposit account, which generated substantial controversy and litigation in 2024 when lawsuits accused several major brokerages of violating their duty to clients by directing cash into affiliated bank accounts paying near-zero interest rates.
Always check what your brokerage's default sweep vehicle is and whether alternatives are available. The difference between a 0.01% bank sweep and a 4.5% money market fund on a $100,000 balance is $4,490 per year.
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