A sweep account is a complimentary bank account where money is sent to from another account. It links a checking account with an investment account, such as a money market account or stock fund. Most sweep accounts require you to maintain a minimum balance where the bank sweeps your account daily, removes funds in excess of that minimum balance, and places into and invests those funds into another account you’ve selected. If your sweep account falls below the minimum balance, the bank automatically sweeps funds back into the account to bring it back to that minimum balance. You only need to make two choices: the target balance you want to keep and a sweep option for the excess funds. Sweep accounts are convenient because they are automatic. You just set a desired balance, and an additional investment account, and ask the bank to sweep excess funds into the investment account. You can think of a sweep account as a checking and saving account at a bank which are linked and you can specify a dollar amount each month to be transfered to your savings account. A key difference is with the checking and savings account links, there is no set dollar amount that must be maintained and swept into the savings account.
Another great benefit of a sweep account comes into play with the FDIC. The FDIC now insures up to $250,000 with bank accounts. If you’re someone who has more than that amount saved and you want to be covered, a sweep account would be ideal. You can set $250,000 into your account and ask your bank to sweep every penny after that mark into another account with insurance or into an investment account.
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