What is Sweep account
A sweep account is a type of bank account that automatically transfers funds from a transactional account (such as a checking account) to a savings account, or vice versa, in order to maximize interest earnings or minimize overdraft risk. The transfers typically occur at the end of each day, and are designed to maintain a target balance in the transactional account or to ensure that surplus funds are invested in the savings account. The frequency and amount of transfers can be set based on the account holder's preferences and financial needs.
Sweep accounts work by automatically transferring funds between two bank accounts, typically a transactional account (such as a checking account) and a savings account, based on predetermined criteria such as minimum balance or maximum balance in the transactional account.
Here's how it works:
Setting up the accounts:
To set up a sweep account, an individual opens both a transactional and a savings account with the same bank. The bank will then link the two accounts so that transfers between them can be automatically made.
Determining the transfer criteria:
The account holder determines the criteria for transfers between the accounts. For example, they may specify that if the balance in the transactional account falls below a certain amount, funds should be transferred from the savings account to the transactional account. Alternatively, if the balance in the transactional account exceeds a certain amount, the excess should be transferred to the savings account.
Automated transfers:
The bank's computer system will monitor the balances in the linked accounts and make transfers based on the criteria established by the account holder. Transfers typically occur daily, or at the end of each business day.
Managing the balance:
By using a sweep account, individuals can manage their cash flow and ensure that their money is working for them by earning interest in the savings account while still having access to funds in the transactional account as needed.
Overall, sweep accounts are a convenient and efficient way for individuals to manage their finances and optimize their earning potential."
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