Is your company’s cash working hard enough for you? While it’s not legal for the checking accounts of corporations to earn interest, there are ways to earn money on cash in the accounts.
Sweep accounts are designed to take a pre-determined amount of cash from the company’s checking account on a daily basis and invest it. For example, if you have $100,000 in a checking account and need to maintain a balance of $75,000 for your company’s needs, the remaining $25,000 is invested.
The money the investments make is deposited to your account on a regular basis, according to the bank’s guidelines and policies. But, says Ryan Burgess, vice president and manager, corporate treasury management and Fifth Third Processing Solutions, the accounts are not a good idea for every company.
“There are fees for sweep accounts, and with interest rates and the stock market low, companies need to determine whether they will earn enough money to offset the fees and make a good return,” says Burgess.
The alternative is to have a company employee take the extra cash, invest it and monitor the investments, which can be more time-consuming and costly than allowing the bank to do it.
“The fact that it is fully automated and you don’t have to worry about managing the funds is an advantage of a sweep account,” says Jeff Rayis, sales manager, global treasury and trade for Bank One in Columbus, “although sometimes you can earn more from moving the funds manually.”
Determining whether a sweep account is right for your business may not be easy. A more attractive option may be a loan sweep.
“For organizations that have a line of credit, we send the money in the checking account overnight into an investment and companies can use the money earned to pay down their line of credit,” says Rayis. “Loan sweeps are earning about 4 1/2 percent. It’s hard to get that kind of return right now without taking incredible risk.”
Burgess says the best candidates for sweep accounts are companies that have both large checking account balances and a large amount available for investment.
“The more services you require, the less money you’ll have to invest,” says Burgess. “The higher the amount you can sweep, the more beneficial it will be.” How to reach: Fifth Third Treasury Management, 341-2553; Bank One Global Treasury and Trade, (614) 248-5178
