Understand how Sweep accounts work
When managing your personal finances, it’s important to get the most out of every dollar. Create a Sweep account with your bank or online brokerage is one way to do it. Sweep accounts allow you to earn interest on money you don’t save or actively invest. These accounts work by transferring unused funds to a high yield savings or investment option at the end of each business day. If you have the opportunity to leverage a sweep account as part of your financial strategy, it helps to understand how they work. Consult a Financial Advisor to make sure you’re getting the most out of every investment dollar you have.
Setting the sweep count
A sweep account is a special type of account that can be linked to a bank account or brokerage account. These accounts are designed to maximize funds that can sit idly by by automatically transferring or âswipingâ them to a higher return investment option. For example, your swipe account may transfer unused money to a money market mutual fund or money market deposit account.
Transfers can be triggered when the funds in your main account are above or below a certain threshold. You may be able to specify which target balance you want to maintain and when the sweeps should take place.
Sweep accounts should not be confused with cash management accounts, which are also available at brokerage houses and robotics advisers. Cash management accounts basically combine the functionality of checking accounts with savings accounts, in that you can use them to pay bills, transfer funds, and make ATM purchases or withdrawals if they are. come with a debit card. A cash management account can earn interest on deposits and, if offered by an online broker or robotics advisor, has lower fees than traditional bank accounts. If you want to do more than just earn interest on unused cash, you can consider a cash management account instead of a sweep account.
Types of Sweep Accounts
As mentioned, you may be able to set up a sweep account with your bank or brokerage house. Sweep accounts in banks can be linked to personal and business accounts. In online brokerage houses, you may have the option of attaching a sweep account to a taxable brokerage account or to a individual retirement account. Regular swipe accounts offered by banks make it easy to earn interest on money, usually with little risk. If funds are transferred to a high yield savings account or money market account, for example, that cash is not exposed to market volatility. You can win a annual percentage return (APY) and the money remains easily accessible in case you need to transfer it to your main account. Depending on the bank, you may or may not pay a fee to have a sweep account as part of your banking package.
Brokerage sweep accounts work the same, although they may differ from bank sweep accounts in terms of where funds are transferred. For example, instead of a money market deposit account, your uninvested cash can be transferred to a money market mutual fund or cash management account.
The goal is the same: to help you earn more interest on money that you are not actively investing. Depending on the brokerage, you may be able to use a sweep account to hold:
New deposits that you are not yet ready to invest
Dividend payments that you choose not to reinvest
Proceeds from the sale of securities in your portfolio
Funds exceeding the target balance of a brokerage account
Some robo advisers that offer sweep accounts can even turn funds into low-risk exchange-traded funds (ETFs). This allows you to keep your money in the market, but in the safest way possible and potentially with lower expense ratios compared to traditional mutual funds.
Benefits of using a Sweep account
You may have money in a bank account or brokerage account that does not earn interest. Sweep accounts help solve this problem.
By automatically transferring money to higher paying accounts or investment options, you can enjoy growth without having to think too much about it. Granted, sweep accounts may not produce the same returns you would get by investing money directly in stocks, ETFs, mutual fund or other investments. But they can offer a safe and reliable way to keep your money growing.
There is also another advantage of having a sweep account in an online brokerage account. Sweep accounts can be a source of ready-to-invest liquidity. Normally, you may have to wait several days for a transfer from a bank account to be processed. It could mean missing an investment opportunity.
Sweep accounts allow quick and easy transfers to and from your brokerage account. So if you are an active trader and want to buy or sell a particular stock quickly, you don’t have to wait days for a transfer from your bank.
A scan count can also be a risk management tool with your investments. Let’s say you’re concerned about a potential downturn, but don’t want to take your money out of the market entirely. You may want to consider selling some of your high risk investments and moving the funds to safer investments in your sweep account.
The money will continue to earn interest while you decide on the next move you want to make. Of course, market timing is not an exact science and it is possible that you could get it wrong. But having a sleep sweep count can be reassuring if you usually have a risk tolerance when it comes to choosing stocks or other investments.
How to open a Sweep account
If you want to open a swipe account at a bank, you can first check if they are offered by your current bank. Otherwise you will have to go around both traditional and online banks to find one that offers sweep accounts for new customers. The same goes for the brokerage house sweep accounts. If you don’t have online brokerage account Still, opening one is pretty easy. Depending on the brokerage you choose, you may be able to open an account with a low minimum deposit or no money at all. You will just need to deposit some money before you can start investing.
If you choose a brokerage or robotics advisor who offers a sweep account, make sure you understand how it works. More specifically, find out about:
When automatic transfers are triggered
How the Sweep Account Money is Invested
What fees will you pay, if applicable, to maintain a scan count
While many online brokerages have adopted a $ 0 commission model when it comes to trading stocks and ETFs, they can still charge other fees, including fees for swipe accounts. . Examining the fine print of scan accounts can help you figure out what you’ll pay to maintain it. If the money in your sweep account is invested in money market funds or ETFs, it is also important to check the expense ratios of these so you know what they will cost each year.
The bottom line
Sweep accounts, whether offered by banks or brokerage houses, can help you get more for your money when you have money idle. The key is to find an account that matches your financial needs and goals. So be sure to compare what is available from banks, online brokers, and robotics advisers when choosing a swipe account option.
Tips for investing
Consider speaking with a financial advisor about the pros and cons of using a sweep account as part of your financial strategy. If you don’t have a financial advisor yet, finding one doesn’t have to be difficult. SmartAsset financial advisor matching tool can help you connect with professional counselors in your area. It only takes a few minutes to upload your personalized advisor recommendations. If you are ready start now.
One way to get a quick and relatively accurate overview of your investment is to take advantage of free, easy-to-use software. investment calculator.
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