If you haven’t discovered bank sweep accounts, you may be losing serious money. For every $100,000 you leave in your checking account, you sacrifice at least $5,000 interest earnings per year. (Next time you want to throw away $5,000, $10,000 or $15,000, just give us a call and we’ll start the Meridian party fund!)
Sweep accounts are a simple way to boost your company’s interest income. Your bank sweeps all your checking account(s) money at the end of each day into an investment account to earn overnight interest. Most banks have both taxable and non-taxable funds for this purpose. Some banks offer Treasury-based funds that they tout as government guaranteed. All the guarantee really gives you is a lower yield so steer clear.
With most banks, you need balances that average at least $100,000 before the service is cost-effective. (There are usually modest fees for sweep service.)
If your company has a strong cash position with at least $250,000 to invest, consider longer 7 to 30 day commitments, outside the sweep funds, in one of your bank’s high yielding investment portfolios. Most banks have pools of credit-card loans, car loans, mortgage loans, or even non-taxable Industrial Revenue Bonds that are available to commercial investors. Ask for a visit from your bank’s commercial investment specialist to hear about available options.
If you have a working line of credit, any daily excess checking account money should be applied to the line first and then the sweep account.
If your bank manages or invests other money for you or your company such as profit-sharing accounts, 401k funds, or personal trust assets, you should negotiate discounts off their posted fees. The more business you do with your bank’s investment department, the lower their fees should be on your transactions.
Finally, if your banker tries to talk you into leaving enough money in your checking account to cover their monthly charges, say no and insist the account be brought to zero every night. When the bank gives you their “interest-like” credits to apply towards your service charges, they don’t calculate the credit to 100% of your money.
If you look carefully at your monthly statement, you’ll see the bank only gives you interest credits on about 90% of your money due to Federal Reserve Requirements. You are always better off doing your own investing with 100% of your funds and paying your checking charges in hard dollars.
Finally, If you find your bank does not offer sweep account services, it may be time you moved to a larger, more sophisticated institution.
