Cash sweeps are the portion of uninvested cash that is automatically transferred into what is intended to be a higher interest-earning FDIC-insured deposit account at the close of each business day. While banks have been paying up on wealth savings/MMS products over the past 18 months, many have left their cash sweeps rates nearly unchanged despite the Fed Funds target remaining over 500 bp.
Firms in the top quartile are paying competitive rates on sweeps accounts (see chart), where they’re incenting clients to hold their everyday cash and some “tomorrow” cash. But many more firms are paying less for this cash than what they’re receiving for it as part of the fees charged on a client’s AUM. According to the Curinos Wealth Analyzer and Informagic, average sweeps rates at the end of June were only just under 1% even as wealth savings/MMS acquisition rates have remained above 4% and portfolio rates nearly 3.5%.
For many firms, sweeps have become a pressing issue, and a number of them have recently raised their rates. These actions could be as prescient as they are consequential. That’s because as we look toward impending Fed rate cuts, rates for deposits products and sweeps will most likely begin to converge. For firms without traditional deposit products for wealth clients, that means having more competitively priced cash sweeps products could provide just what they need to capture a greater share of wallet.
Sweep Rates by Quartile* | Jan ’22 – Aug ’24**
Three-quarters of firms are still paying less than
1% on sweeps despite market rates of ~5%.
