Overnight, treasury and cash management have become central topics among finance teams. Once considered a nice-to-have for later stage companies, finance leaders are now closely examining treasury and cash management strategies to protect capital and drive bottom-line growth. In doing so, they’re adopting new financial tools and technology to help them work more effectively than ever before.
One of the tools getting the most attention? Cash sweep networks. In this article we’ll dive into the fundamentals of sweep networks, why they are a powerful tool in a finance team’s toolkit, and how teams of all sizes are putting them to work within their treasury management strategies.
What is a sweep network?
At its simplest, a sweep network is a network of banks and financial institutions designed to spread a depositor’s funds across multiple institutions, rather than storing them at a single bank or institution. Sweep networks are not investment funds. Like regular bank accounts, accounts within the network hold deposits, and all accounts are in the account holder's name. This has several advantages compared to a traditional bank account, including a higher overall FDIC coverage limit for deposits and lower banking concentration risk (a contributing issue that led to the downfall of Silicon Valley Bank).
Why do banks utilize sweep network?
Banks use sweep networks for many reasons, like earning more interest on customers' money while keeping their own risks low. Sweep accounts also help banks keep enough cash on hand to meet their obligations and manage their money better. This way, banks can make the most of their finances and provide better service to their customers.
How do sweep networks increase FDIC coverage of deposits?
One of the primary benefits of a sweep network is the enhanced FDIC insurance coverage it offers. Standard FDIC insurance policies provide coverage up to $250K in deposits for each client at a bank, regardless of the account balance. However, many businesses frequently operate with more than $250k in their account, making this coverage insufficient.
The traditional way for businesses to increase their insurance coverage involved opening multiple bank accounts. However, sweep networks offered by banks or tech platforms like Crescent eliminate the need for opening and managing multiple accounts. Instead, sweep networks allow banks to open multiple accounts on behalf of their customers, significantly enhancing their coverage.
For example, if a company deposits $1M into an account powered by a sweep network, those funds will be divided among four or more banks within the network, with FDIC insurance of up to $250,000 per bank. This means that 100% of the funds are protected by FDIC coverage. In contrast, keeping all $1M at one bank would only give FDIC coverage to 25% of the funds.
How do sweep networks offer higher rates than typical accounts?
One of the main advantages of using products like Crescent Cash, which are powered by sweep networks, is the competitive rates they can generate. Sweep networks frequently negotiate better rates with partner banks and investment companies because they manage large amounts of funds. By pooling funds from multiple customers, sweep networks can negotiate more favorable rates on behalf of their customers than individual customers would be able to obtain on their own.
A sweep network is a collection of banks and financial institutions that enables clients to access more FDIC coverage than a traditional business account by distributing deposits and placing no more than $250,000 into a single account. By spreading funds across multiple institutions, sweep networks provide higher FDIC coverage limits, mitigating banking concentration risk and protecting capital.
The enhanced FDIC coverage provided by sweep networks eliminates the need for businesses to open multiple bank accounts. Additionally, sweep networks can offer competitive interest rates by leveraging their collective fund pool to negotiate better rates with partner banks and investment companies. As finance teams prioritize treasury and cash management strategies, sweep networks have proven to be a valuable solution for protecting capital and driving bottom-line growth.
Transform idle cash into earnings for growth.
At Crescent, our goal is simple: help businesses take their capital further by building better treasury management tools and automations that transform your finance team into your secret weapon for growth.
Crescent Cash gives businesses access to 300x more FDIC coverage, with 4% APY. No more sacrificing earnings for safety. No more concentration risk nightmares. No more liquidity headaches. More features are on the way including next-day liquidity, improved ACH support, and deeper reporting.
Crescent Financial Inc. is a financial technology company, not a bank or other federally insured institution. Crescent Cash provides businesses with access to a network of federally insured financial institutions, including 300+ FDIC member banks. Statements of total FDIC insurance coverage are based on the combined FDIC insurance limits per account at the FDIC-insured banks in the network as of May 2023 and is subject to change accordingly. APY is subject to change.