We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.
Finance

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

What is a Cash Sweep?

Nicole Madison
By
Updated: May 16, 2024
Views: 45,884
Share

A cash sweep is an automatic bank process. Through this process, funds are moved from a bank deposit account to an investment account or from an investment account to a deposit account. For a cash sweep, the funds can be transferred between accounts at the same institution or from an account at one institution to an account at another. Usually this is accomplished daily and can be arranged for a portion of the funds in either account or the entire balance of the account.

In order to automatically transfer funds from a deposit account to an interest bearing account, such as a mutual fund account, a person may set up a cash sweep. The funds in these accounts are transferred based on the customer’s specifications. This means the customer can specify that all of the funds present in either account are transferred each day or he can request the transfer of only a small portion of it. For example, a person could have the excess balance on his investment account transferred to a deposit account.

In most cases, a cash sweep happens once per day. This daily schedule applies no matter which account is involved. A bank will perform a cash sweep from its customer’s account once per day, and the investment account manager handles transfers once a day as well.

Cash sweep arrangements are often useful for account holders, including businesses, who need access to a large amount of funds without having to wait a significant amount of time. While a person or business in this situation could hold his money in a checking account, he would not typically earn as much on it as he could with an investment account. As such, a person or business in this position usually gets the best of both worlds with a cash sweep: significant interest that allows his money to grow and quick access to his funds when he needs them.

Cash sweeps were initially instituted by banks as an effort to deal with non-bank competition that paid interest and offered features similar to those available via deposit accounts. Since banks could not offer interest on checking accounts at the time, they created cash sweeps to ensure that their customers could still bank with them yet easily move their money into accounts that were interest bearing. Today, there are interest-bearing checking accounts, but they usually pay far less interest than investment accounts.

Share
SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Nicole Madison
By Nicole Madison
Nicole Madison's love for learning inspires her work as a SmartCapitalMind writer, where she focuses on topics like homeschooling, parenting, health, science, and business. Her passion for knowledge is evident in the well-researched and informative articles she authors. As a mother of four, Nicole balances work with quality family time activities such as reading, camping, and beach trips.
Discussion Comments
By Emilski — On Jul 03, 2011

I am looking to start a cash sweep account with my bank. For anyone who has had experience with this type of account, what should I look for from my bank? Are there certain questions I should ask about having the money transferred?

Maybe most importantly, will I be charged anything for this service. My guess is that with the advent of the internet, electronic deposits make this process almost cost-free.

By jmc88 — On Jul 03, 2011

@kentuckycat - That's a very good question. I started a sweep account several years ago, and I was not familiar with the practice at that time.

The way it works is that you put money into your primary account, and the bank will automatically transfer the money into a different account where it will collect higher interest.

Like the article mentions, this can be the entire amount of an account or just a portion. In my case, I transfer all of the money over, and then when I write a check or withdraw money, that amount is transferred out of the investment account to cover the check or withdraw.

It's a very beneficial system that I don't believe is publicized quite enough.

By kentuckycat — On Jul 02, 2011

One thing I don't quite understand here is: Does the cash sweep originate with the bank or with the account holder? For example, if I deposit money into my account, does the cash sweep happen when I move the money into an investment account, or does the bank automatically move my money into their own investment account?

Nicole Madison
Nicole Madison
Nicole Madison's love for learning inspires her work as a SmartCapitalMind writer, where she focuses on topics like...
Learn more
Share
https://www.smartcapitalmind.com/what-is-a-cash-sweep.htm
Copy this link
SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.