Sweep Account

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Definition of 'Sweep Account'

A sweep account is a type of bank account that automatically transfers money from a checking account to a savings account when the checking account balance reaches a certain threshold. This can help to keep your checking account from going overdrawn and to earn interest on your money.

There are two main types of sweep accounts:

* **Automatic sweep accounts:** These accounts are set up to automatically transfer money from your checking account to your savings account when the checking account balance reaches a certain threshold. The threshold is typically set at $500 or $1,000.
* **Manual sweep accounts:** These accounts allow you to manually transfer money from your checking account to your savings account. This can be useful if you want to control when the money is transferred or if you want to transfer a specific amount of money.

Sweep accounts are a great way to save money and to keep your checking account from going overdrawn. However, it is important to note that sweep accounts typically do not offer as high of an interest rate as traditional savings accounts.

Here are some of the benefits of using a sweep account:

* **Can help to keep your checking account from going overdrawn:** If you have a low checking account balance, you may be charged an overdraft fee if you write a check that exceeds your balance. A sweep account can help to prevent this by automatically transferring money from your savings account to your checking account when the checking account balance reaches a certain threshold.
* **Can help you save money:** If you are not disciplined about saving money, a sweep account can help you to do so automatically. When you set up a sweep account, you will need to decide how much money you want to transfer from your checking account to your savings account each time the threshold is reached. This will help you to save money without having to think about it.
* **Can be used to earn interest:** Some sweep accounts offer interest on the money that is held in the account. This can be a good way to earn a little extra money on your savings.

Here are some of the drawbacks of using a sweep account:

* **May not offer as high of an interest rate as traditional savings accounts:** Some sweep accounts do not offer as high of an interest rate as traditional savings accounts. This is because the money in a sweep account is typically used to cover overdrafts, so the bank does not have to keep as much money in reserve.
* **May have fees:** Some sweep accounts may have fees, such as a monthly maintenance fee or a fee for each transfer. It is important to read the terms and conditions of the sweep account before you open one to make sure that you understand all of the fees.

Overall, sweep accounts can be a great way to save money and to keep your checking account from going overdrawn. However, it is important to weigh the benefits and drawbacks of sweep accounts before you decide if one is right for you.

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