Sweep Account

Sweep Account Definition

A sweep account is a combination of two or more accounts at a bank or financial institution. It is useful in managing a steady cash flow between a cash account used to make scheduled payments, and an investment account where the cash is able to accrue a higher return.

In a sweep account

1. A cash account is set up first and a lump sum of money is deposited into that account.
2. A financial advisor and the client will discuss and determine an average balance that should be kept in this account. Depending on the institution's service programs, this amount may be pre-determined.
3. Most of the extra cash above the average balance will be invested into a money market, CD, or some other form of investment that can be easily liquidated.
4. When the balance in the cash account falls below the pre-determined average balance, some of the investment is liquidated and the proceeds get deposited into the cash account, thus maintaining the average balance.

If the initial calculations are done correctly, the interest on the cash and returns on the investments should yield a large enough return that will increase the total value of the sweep account.