Sweep Account
Candlefocus EditorIn the past, companies had to manually keep track of and transfer their cash balances on a daily basis. However, this could be time consuming and difficult to manage. Sweeping cash allows companies to maximize the available liquidity and interest-earning capability available from their accounts, as the funds are automatically collected from one or more accounts and transferred into a higher yielding option.
Sweep accounts are beneficial for cash-intensive businesses for whom effective short-term liquidity management is a priority. Thus, sweep accounts provide the ability to earn higher returns from the fund with less administrative effort than it would take to manually manage the cash transfers. Sweep accounts also offer a higher risk-adjusted return than central bank-issue deposits, CDs and other investments by providing safety and liquidity without sacrificing returns.
The entry and exit fees associated with sweep accounts may be a deterrent for some, as sweep accounts are not always free. When selecting a sweep account provider, it is important to read the fine print and compare the fees and terms to the other providers and products in the market. When the fees and terms are favorable, sweep accounts could be the right choice to maximize liquidity, ssignificantly improve overall investment performance and provide a reliable source of cash.