Rather than park surplus cash in checking, many businesses use sweep accounts to collect interest while their cash lasts. Sweep accounts automatically transfer surplus cash from checking into money market funds and then back to checking the next day, if needed. If you already use a sweep account, now is a good time to consider shopping around. Many banks offer sweep account services specifically for small businesses, which include lower balance requirements, lower fees and new investment options.
KeyBank, for example, offers The Business Total Access account, a sweep account service designed especially for small businesses with a $10,000 minimum balance requirement. The account provides access to funds in an FDIC-insured checking account while sweeping excess balances into a uninsured money market mutual fund. Customers can choose among five money market mutual funds, says Sue Grant, commercial deposit and sweep investment product manager for KeyBank.
Some banks allow businesses to determine their own minimum balance, based on what the business needs daily for operations. Union Bank of California offers such a service, says Donald Hance, vice president of small business banking. In reviewing your sweep account or when setting one up for the first time, Hance says the target balance – or sweep balance – is the key variable. First of all, make sure you are not leaving excess funds in the checking account, Hance says.
If you have excess funds in the sweep account, you might be better off investing money for a longer period in a 30-, 60- or 90-day money market fund, Hance says. On the other hand, with interest rates coming down, you may find it better to keep more in your checking account to offset fees for transferring from money market to checking if you dip below the minimum balance frequently, he says.
“Before using a sweep account, organizations should ensure that the interest earned from excess cash balances justifies the additional bank charges required to implement a sweep account,” says Jason Johnson, a certified public accountant in Springville, Utah. “From my experience, an organization should have average cash balances of at least $20,000 before considering using a sweep account.”
Although you might be able to find more profitable short-term cash investments, a sweep service eliminates time and headaches by automatic cash transfers. Even so, don’t let your current service prevent you from looking for better offers or redesigning your service to yield more interest.
