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Sweep Rewards

Looking for a better return on your business checking account? Many banks have started offering "sweep" accounts to business customers--a service whereby any funds left in low-interest checking accounts at the end of the business day or workweek, are automatically transferred into short-term investment instruments.

According to an industry survey by Treasury Strategies, sweep accounts grew by 143 percent from 1995 to 1997, with an estimated $113 billion invested in 1997 alone.

Instead of earning 3 percent interest on your checking account, your excess balance is transferred into higher-yielding money-market funds, T-bills or stock funds. Banks offer a variety of plans--some sweep overnight or on the weekend, then transfer the funds back before the next business day, while some sweep the money above a limit, then transfer funds back to cover potential overdrafts as the money is needed.

A few banks let customers set the thresholds for sweeping money, although most thresholds are set by the banks, which charge clients anywhere from $20 to $150 (think investment bells and whistles) for the service.

Donald Hance, vice president of cash management for Union Bank of California in Los Angeles, says his bank offers a variety of arrangements, with different prearranged cutoff points. "For instance, a customer selects a $50,000 cutoff," Hance explains, "and any other money gets swept into investment accounts--usually money-market funds or T-bills. As checks come in, the funds are swept back into the checking account."

Sweep accounts may not be suited for all small businesses, Hance cautions "You have to keep enough in the account to make it worthwhile," he says. "Smaller businesses may be better off making transfers themselves--the return on their investment may not cover the administrative costs of the sweep account."

Two things to remember: Funds placed in investment vehicles are not insured by the FDIC, and not all banks have the same cutoff rates--plus their investment timing varies. The Treasury Strategies survey found 80 percent of banks that swept funds into repurchase agreements invested the money on the same day as the sweep itself, while less than 60 percent of money-market investments were made on the same day as the sweeps. The sooner the money is put into a higher-interest investment account, the sooner it can begin to earn and the greater its potential return will be.

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