Skip to main content
Home / Fraud Center

What Is a Sweep Account, and How Does It Help My Small Business?

Running a small business is an intense, but rewarding undertaking. Most owners and operators start their business out of passion. Some smart financial moves and optimized cash management can support that passion and help your business grow. The right bank can offer you solutions you may not have known about. One key example is a sweep account. In the following article, we’ll answer basic questions like “What is a sweep account?” “What are the benefits?” and “What are the drawbacks?” By the end, you should have a clearer understanding of how this type of account can benefit your small business.

business owner of in her clothing shop looking at her laptop

What Is a Sweep Account?

 A sweep account is a specialty bank account set up to retain a certain cash balance for immediate business expenses; any excess funds are automatically swept daily into an interest-bearing account, such as savings, a money market account, or a different investment product.

What Are the Benefits of a Sweep Account?

Your Money Works Harder.

Under this arrangement, your business’s profits are working for you — earning interest — instead of sitting idle. Earning added interest on your existing funds means you’re maximizing your overall earning potential.

It Requires Minimal Oversight.

Managing a business is time-consuming. In a sweep account, your money is transferred to a better investment vehicle with minimal effort on your part.

It Provides a Safety Net.

You set a minimum cash balance for your checking account. This number is what you need to conduct your business on a daily basis. With this important guidance in place, if your checking account dips below your established minimum, funds from the interest investment account will be swept back into checking.

The Drawbacks of a Sweep Account

The main drawback is the cost. You’ll want to make sure your account is earning you more money than it’s costing you. Pay attention to the way it’s set up. Some brokers will charge you a monthly flat fee for account management, like First National Bank and Trust. Others will take a percentage of the yield. Compare your outgoing expenses against your account growth and earned interest to be certain you’re benefiting from your sweep account.

How to Know Whether a Sweep Account Is Right for Your Small Business

If your business is pretty new and you don’t have a good sense of how much cash you need on hand to run your day-to-day operations effectively, it may be too soon to set up a sweep account. If your income fluctuates so much that you don’t think you’ll be able to keep funds in an investment account often enough to earn much interest, it’s probably not time for a sweep account yet.

Consulting with Your Bank

You have to wear a lot of hats as a small business owner, but you don’t have to be an expert in every aspect of management. A helpful consultant at a local bank can help guide you through financial decisions. At First National Bank and Trust, our knowledgeable Branch Managers and Cash Management team are happy to tell you more about business resources, including sweep accounts, fraud management, merchant services and EDI reporting. Contact us or come by your local branch to find out more.