Sweep Account News: Key Concepts, Benefits, and SEC Scrutiny

Sweep accounts have been under scrutiny from the SEC, with a notable example being a 2019 case against a bank for failing to properly disclose sweep account fees.

Sweep accounts are used by banks to manage cash and minimize idle balances, often by automatically transferring excess funds to higher-yielding investments.

The SEC has been cracking down on sweep accounts, requiring banks to clearly disclose the terms and fees associated with these accounts.

A key concept in sweep accounts is the "sweep" itself, which is a process that automatically moves excess funds to a higher-yielding investment, such as a money market fund.

An account is a bank or brokerage account that holds your money, and a sweep account is a type of account that automatically transfers excess funds into a higher interest-earning investment option.

A sweep account is typically used when you have multiple accounts at the same institution, such as a checking and savings account.

To utilize a sweep account, you set a threshold, like a certain balance in your checking account, and the sweep account moves funds above that threshold into another account that earns a higher return.

Funds are automatically transferred at the close of each business day, so you don't have to worry about manually moving money around.

A sweep account is a great way to maximize the total return across all of your accounts by moving excess cash into a money market mutual fund that earns a higher interest rate.

A sweep account is a type of account that automatically transfers excess cash into a higher-interest investment option at the end of each business day.

Sweep accounts were originally devised to get around a government regulation that limited banks from offering interest on commercial checking accounts.

These accounts work by analyzing customer use of checkable deposits and sweeping funds into money market deposit accounts, providing the greatest amount of interest with the minimum amount of personal intervention.

A sweep account service may not always be free, and you might have to pay fees to your broker that might make the sweep less attractive on a net basis.

To give you a better idea, here are some common features of sweep accounts:

Individual sweep accounts are typically used by brokerages to store client funds until they decide how to invest the money.

You can sweep excess funds to help pay off a loan instead of putting them into a money market or savings account.

Business sweep accounts allow you to sweep excess money from business accounts, making it easier to manage cash flow.

External sweep accounts can sweep cash into deposit accounts externally, increasing the amount of FDIC insurance coverage to $250,000 per account.

Some institutions offer complimentary sweep accounts, while others may charge fees.

Note that there are no particular tax implications for using a sweep account.

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Sweep accounts can be set up to help pay off a loan or a line of credit, making it easier to manage your debt.

You can also set up a sweep account to help you save money by automatically transferring excess funds into a savings or investment account.

Ameriprise Financial offers several cash solutions that allow you to earn interest or dividends on uninvested cash, keeping your cash accessible and working for you.

Personal sweep accounts work similarly to business sweep accounts, enabling the swift transfer of funds from a low-interest-bearing account to one that generates income.

By setting up a sweep system, businesses can manage different income streams and potentially invest their cash to get more growth.

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A sweep account can be a valuable tool for managing your finances and earning a higher return on your money. You can set up a sweep account to transfer excess funds from your checking account to a savings account or money market fund that earns a higher interest rate.

One of the main benefits of a sweep account is that it allows you to keep a set amount of money in your checking account to cover bills and expenses, while also taking advantage of higher returns on excess funds. This can be especially useful for individuals who struggle to save money or have a hard time keeping track of their finances.

A sweep account can also be used to automatically transfer funds from a brokerage account to an investment account, such as an IRA or a taxable account. This can help you maximize your returns and make the most of your investments.

Some institutions offer an auto-sweep feature, which allows the sweep account to be linked to the non-sweep account and transfers to be initiated automatically when defined thresholds are crossed. This can be a convenient and hands-off way to manage your finances.

Here are some potential uses for a sweep account:

As with any financial tool, it's essential to be aware of any fees associated with a sweep account. Some sweep accounts are complimentary, while others may incur charges that could eat into your returns.

The SEC is cracking down on cash sweep programs, and it's likely to lead to changes within firms.

Increased scrutiny from the SEC has played a role in the surge of new lawsuits, attorneys said. This is partly due to the federal funds rate's rise, which has made it more profitable for firms to collect the spread between the interest paid to customers and the interest earned when loaning the sweep deposits.

Firms like Charles Schwab have already agreed to pay millions to settle SEC charges that clients were misled about hidden fees in connection with their robo-adviser product. This includes a $187 million settlement in June 2022.

The SEC is targeting potential conflicts of interest in cash sweep programs, as well as inappropriate advisory fees, low rates of return, and liquidity concerns. This means firms will need to be more transparent and fair in their practices.

At least eight financial firms have faced lawsuits since late June, with plaintiffs alleging they made billions of dollars in net interest income from their cash sweep programs.

Sweep accounts can be a great option for earning higher interest rates or investment returns, potentially growing your money over time.

They also happen automatically at the close of each business day, so you don't have to think about it, which can be a big relief.

Some sweep accounts are FDIC-insured, which means your deposits are protected up to $250,000, or they may be protected by SIPC, offering an extra layer of security for your investments.

Sweep accounts can help you earn higher interest rates or possibly investment returns.

One of the biggest benefits of sweep accounts is that they happen automatically at the close of each business day, so you don't have to think about it.

Some sweep accounts are FDIC-insured, which means your money is protected up to $250,000 by the Federal Deposit Insurance Corporation.

Using a sweep account might not be the best choice for everyone. Your bank or brokerage may charge additional fees for using a sweep account, which could cancel out the interest earned.

One thing to consider is the potential loss of FDIC insurance. If your money is swept into a brokerage account, it won't be FDIC-insured, but it could be covered by the SIPC.

Sweep accounts often come with fees that can eat into your earnings.

For more insights, see: Brokerage Account Statement

Sweep accounts are a smart way to earn interest on excess cash. They automatically transfer excess money from a client's cash account to a higher interest-bearing investment account.

This process is triggered when the monetary level in the cash account exceeds the required amount. The excess funds are then moved into the investment account, where they can earn interest.

The benefit of sweep accounts is that they allow clients to earn interest on money that isn't being used. This can add up to a significant amount over time, especially for those with large cash reserves.

Sweep accounts can be set up to automatically transfer funds at a specific threshold, such as a certain dollar amount or percentage. This ensures that clients are always earning the highest possible interest on their excess cash.

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