Account cash sweep option helps businesses earn interest

After promoting the new account for several weeks, Guaranty Bank’s Guaranty Cash Sweep Account became available Oct. 2.

Cash Sweep allows businesses the option of earning interest on funds that would normally be stored within their checking account, according to Chandler Johnston, a business banker with Guaranty Bank.

The Guaranty Cash Sweep Account is currently paying an interest rate of 5 percent.

That rate will last through Dec. 31, after which it will be adjustable. The service fee for the Cash Sweep account is $35 a month.

How it works

When setting up a Guaranty Cash Sweep Account, the business establishes a target balance.

“What the target balance does is allow you to offset all of your service charges through analysis,” Johnston said. “By maintaining this certain balance, you’re not going to pay any service charges.”

Funds in excess of the chosen target balance are swept, or transferred, into an interest-bearing account at the end of each business day.

The account works backward as well.

“If your account falls down below your target balance – because you’ve had to go buy a large piece of equipment, it’s tax time, or it’s payroll time – the money needed for these purchases will sweep back from that interest-bearing account,” she said.

“You don’t have to transfer money from your money market account or other interest account.”

Though Johnston said some companies have begun using Cash Sweep, she declined to say how many or to provide business names.

Improving on an old idea

Guaranty Bank’s new Guaranty Cash Sweep Account isn’t based on a new concept.

“This type of account has been in existence for a number of years,” said John Duke, executive vice president and chief operations officer for Empire Bank.

Empire offers a variety of options for businesses looking to invest excess funds.

“We do have products that the customer can have control of it, as well as systems that will do it automatically,” he said. “There would certainly be fees depending on the level of service.”

For example, there are customers who prefer to use Empire Bank’s electronic banking and move funds out of their checking accounts into investment accounts on their own.

“There’s not really a cookie-cutter design to it,” added Duke. “It’s based on the customer’s needs.”

Target users

Guaranty’s Cash Sweep customers range from small local businesses to larger corporations with multistate operations.

“The ones it will help the most are going to be those customers that want to earn interest on their funds but need quick access to their money,” Johnston said.

For example, said Johnston, this type of account works well for construction companies.

“They get a large sum of their job payments at once. then they’re going to slowly use those funds to build the project,” she said.

Johnston said the bank is using the Cash Sweep option to help existing customers increase their account balances and to attract new customers.

Guaranty’s Cash Sweep account is different than traditional sweep accounts, also known as repurchase accounts. However, rather than buying securities from the bank, the interest bearing account is covered by Federal Deposit Insurance Corp. insurance.

And there is no standard for how much or how often an amount is swept.

“We have some customers with sweep balances that change on a daily basis,” Johnston said. “And we have others that might stay the same for one or two weeks because they simply don’t have activity on their account.”