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What is a cash sweep account or sweep account?
A cash sweep account automatically transfers uninvested cash — typically from a bank or brokerage account — to higher-yielding accounts or investments, such as banks, money market funds or short-term Treasury securities. These options are generally low risk and keep cash easily accessible.
Uninvested cash might include account deposits, dividends or interest from investments, or proceeds from an investment sale.
The main purpose of a cash sweep account, also called a sweep account, is to earn interest on money that would otherwise sit idle.
Many sweep accounts also offer banking features such as electronic payments and check-writing services. The interests rates on sweep accounts can vary.
You may be asked to choose a cash sweep program when opening an investment account, or you may be automatically enrolled in one.
Some programs are free, while others may charge fees such as account management or maintenance fees. Some cash sweep accounts also have minimum account balance requirements.
Cash sweeps may be insured, depending on where the funds go. Cash swept into bank accounts is typically covered by Federal Deposit Insurance Corp. insurance.
Funds swept into brokerage accounts may have coverage under the Securities Investor Protection Corp.
Both entities have cash coverage limits of $250,000 per customer.
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