Cash Sweep (2024)

FAQs

What is the cash sweep rule? ›

In finance transactions, this refers to the use of a borrower's excess cash to prepay its loans. It is called a cash sweep because the cash is taken or swept from the borrower's bank accounts and applied to pay down debt.

A cash sweep refers to the use of excess cash to pay down debt. To conduct a cash sweep, excess cash is moved from a borrower's account and applied towards existing debt. For individuals, cash sweep accounts maximize investment earnings by transferring excess cash into interest-earning accounts.

Yes, interest on your uninvested brokerage cash that is swept to the program banks will be compounded daily. Each day, you earn interest on your balance, and that earned interest itself also earns interest. Over time, your uninvested brokerage cash multiplies and grows on its own.

Cash Sweep vehicle:

This is a feature offered by some brokerages, including TD Ameritrade, where any idle cash above a set threshold (e.g., $1,000) is automatically transferred to a designated investment vehicle. This "sweep" happens daily or at certain intervals.

Do I have access to the swept cash? Yes! Your uninvested brokerage cash in the program banks is available for withdrawing and investing through your brokerage account and the cash balance is visible in your Robinhood brokerage account.

Insured cash sweep accounts offer a high degree of security for your deposits, utilizing FDIC insurance to safeguard funds up to $250,000 per depositor at each participating bank. This protection extends even in the event of a participating bank's failure, ensuring the continued safety of your deposits.

The Drawbacks of a Sweep Account

The main drawback is the cost. You'll want to make sure your account is earning you more money than it's costing you. Pay attention to the way it's set up. Some brokers will charge you a monthly flat fee for account management, like First National Bank and Trust.

A sweep account generally does not hold money itself; it just sweeps funds from one account to another. So a sweep account itself will not lose money, though it is possible to lose money, depending on where you sweep the money to.

The primary advantage of maintaining a sweep account is the ability to earn a return on excess cash instead of letting it sit idle while also ensuring there's enough cash on hand to pay for operating expenses. Minimal work needed to maintain. The automation provided by sweep accounts makes the process simple.

Our brokerage cash sweep program allows Robinhood Gold members who opt in to earn a 5% annual percentage yield (APY)* on uninvested brokerage cash that is swept to the banks in our program, 0.01% APY* without Gold. That means you can put your money to work, even if you're not currently investing it.

What is the advantage cash sweep? ›

Advantage Sweep is a liquid FDIC insured alternative to money market mutual funds. It enables clients to obtain millions of dollars of FDIC insurance with daily liquidity and potentially higher returns.

Brokerage cash sweep and PDT

The reason we pause participation in the brokerage sweep program when you're flagged as a PDT is because cash at program banks doesn't count toward the $25,000 minimum needed to continue day trading.

When the cash account in a business's general ledger has a credit balance, there is a negative cash balance. The corporation's writing checks for more than it has in its bank account frequently results in a credit or negative balance in the bank account. In accounting, the cash sweep is therefore negative.

With a sweep account, any amount of funds that exceed a certain, pre-set amount are “swept” into a higher interest-earning account. These sweeps can happen at the end of the business day or on another, pre-determined schedule.

Your cash in the TD Ameritrade IDA feature is currently insured by the Federal Deposit Insurance Corporation (“FDIC”) within applicable limits. Your cash in the Schwab Bank Sweep cash feature will also be insured by the FDIC within applicable limits.

Key Takeaways. A sweep account automatically transfers cash funds into a safe but higher interest-earning investment option at the close of each business day, e.g., into a money market fund. Sweep accounts try to minimize cash drag by capitalizing on the immediate availability of higher-interest accounts.

by Kevin Coulston. Written by Kevin Coulston. After deducting debt service payments, cash sweep refers to the utilization of any free cash flow to pay down an outstanding loan balance as opposed to distributing it to shareholders.