Money Rehab with Nicole Lapin - How To Make Money While You Sleep: Sweep Accounts

Episode Date: September 24, 2024

Nicole recently started using a financial tool that has helped her make money while she sleeps: sweep accounts. Today, she tells you all about it. $ Take control of your finances by using a Chime checking account with features like no maintenance fees, fee-free overdraft up to $200, or getting paid up to two days early with direct deposit. Visit: http://chime.com/MNN  $ Looking for the perfect holiday gift for your coworkers, friends, and everyone in between? Choose Nicole’s favorite wine, Justin. Get 20 percent off your order for a limited time with the code “MONEY20” at http://justinwine.com/  $ Ready to find a financial advisor that’s right for your financial goals? Get matched with a trusted, vetted financial advisor at: http://moneypickle.com/MNN  All investment strategies involve risk of loss. The information shared in this podcast is for informational and entertainment purposes only. Listeners should do their own research and consult a financial advisor before making any investment decisions. See terms for additional details: https://moneynewsnetwork.com/terms/ 

One of the most stressful periods of my life was when I was in credit card debt. I got to a point where I just knew that I had to get it under control for my financial future and also for my mental health. We've all hit a point where we've realized it was time to make some serious money moves. So take control of your finances by using a Chime checking account with features like no maintenance fees, fee-free overdraft up to $200, or getting paid up to two days early with direct deposit. Learn more at Chime.com slash MNN. When you check out Chime, you'll see that you can overdraft up to $200 with no fees. If you're an OG listener, you know about my infamous $35 overdraft fee that

I got from buying a $7 latte and how I am still very fired up about it. If I had Chime back then, that wouldn't even be a story. Make your fall finances a little greener by working toward your financial goals with Chime. Open your account in just two minutes at Chime.com slash MNN. That's Chime.com slash MNN. Chime. Feels like progress. Banking services and debit card provided by the Bancorp Bank N.A. or Stride Bank N.A. Members FDIC. SpotMe eligibility requirements and overdraft limits apply. Boosts are available to eligible Chime members enrolled in SpotMe and are subject to monthly limits. Terms and conditions apply. Go to Chime.com slash disclosures for details.

I love hosting on Airbnb. It's a great way to bring in some extra cash. But I totally get it that it might sound overwhelming to start or even too complicated if, say, you want to put your summer home in Maine on Airbnb, but you live full time in San Francisco and you can't go to Maine every time you need to change sheets for your guests or something like that. If thoughts like these have been holding you back, I have great news for you. Airbnb has launched a co-host network, which is a network of high quality local co-hosts with Airbnb experience that can take care of your home and your guests. Co-hosts can do what you don't have time for, like managing your

reservations, messaging your guests, giving support at the property, or even create your listing for you. I always want to line up a reservation for my house when I'm traveling for work, but sometimes I just don't get around to it because getting ready to travel always feels like a scramble, so I don't end up making time to make my house look guest-friendly. I guess that's the best way to put it. But I'm matching with a co-host so I can still make that extra cash while also making it easy on myself. Find a co-host at Airbnb.com slash host. I'm Nicole Lappin, the only financial expert you don't need a dictionary to understand. It's time for some money rehab. When we think about making more money, our first thought is usually optimizing our salary,

right? We can think about asking for a raise or switching to a job that pays more money or even taking on a side hustle to bring in another income stream. But one set of strategies that is too often overlooked is how to make more money from the money you already have. If you have money just sitting in your checking account, it is doing nothing, but it could be working hard for you if you put it in the right place. If you listen to the show, you already know about high yield savings accounts and of course investing in the stock market. But today I'm going to tell you about a whole different kind of account that I've never talked about before on the show that could help you make money literally while you're sleeping. It's called a sweep account. Whether you're an entrepreneur managing cash flow or just someone looking to make the most out of your bank balance, you'll want to know how these accounts work. At a top level, a sweep account is kind of like autopilot for your money. It allows you to execute one of my favorite money mantras,

set it and forget it. It's an account that automatically transfers or sweeps funds between your checking account and another high interest account, often a money market account, at the end of each business day. The idea here is simple. You want to earn more interest on the cash you have sitting on the sidelines. And a sweep account will help you do that by moving anything above a certain threshold into a higher interest account overnight. The next morning, if you need that money, it is automatically swept back into your main checking account so that you can still pay bills, make payroll, do whatever you need to do with your money. I'm sorry, but how cool is that? I actually learned about this type of account recently. Shout out to my husband who taught

me about it. We were talking about work one day and he's an entrepreneur and uses this type of account for his business. I was thinking about how I could make more money with the money that we have in our MNN banking account. So I signed up for a sweeps account and kept the threshold at $10,000. So we have $10,000 in our account all the time. Anything above that is swept away into a higher interest account overnight and then swept back the next day. So let's say we spend $5,000. Then $5,000 is swept back in for always a total of $10,000 in the account at all times accessible. We can change this limit anytime we want. And so far, we just started this, by the way, but we have made $700 so far. And that is free money that we will happily take.

There are generally two kinds of sweep accounts, bank sweep accounts and brokerage sweep accounts. The difference, to state the obvious, is one is offered by a bank and one is offered by a brokerage. The scenario I mentioned about money being moved from your checking account, that sweep is offered by your bank. And if your account is with a traditional bank, the funds are being swept into a savings account or a money market deposit account, then your money is typically FDIC insured up to $250,000. This means that both your principal and any interest earned are protected by federal insurance. In brokerage accounts, your uninvested cash might be swept into a money market mutual fund, which is not FDIC insured. While money market mutual funds are generally pretty safe,

there is a very small risk to your principal because it's invested in securities, not deposits. Today, I'm really focused on the bank sweep accounts because for anyone who is on the more risk-averse side of the investing spectrum, the cool thing about sweeps accounts is that you can earn extra interest on your money without taking on more risk. Investing the money from your checking account into the stock market is another strategy that can grow your money, but with investing, there is always the risk that you could lose your money. Sweep accounts offered by banks are principal protected, so you don't have to worry about your hard-earned money. The worst thing that could happen is that you don't earn that much extra cash, which is not a bad outcome for money that wouldn't be growing very much anyway.

But sweep accounts aren't just for individuals, of course. I mentioned that I use it for my business. If you're a business owner too with a lot of money moving in and out on a daily basis, a sweep account can make sure your excess cash isn't just sitting pretty doing nothing. It helps you earn interest overnight without having to worry about moving money around manually. So let's answer some FAQs that you might be asking yourself about all this. What happens if you need the money that's being moved into a money market deposit account? In other words, how is the liquidity? Is the money illiquid, meaning difficult to melt into cash when you actually need it? No, sweep accounts give you access to your funds whenever you need them. In fact, the money is swept back into your checking account each day so you can cover

expenses or bills, whatever you need. Another question you might be asking yourself is, who are sweeps accounts best suited for? If you've got a large balance sitting around for any period of time, a sweep account could help you earn interest that you wouldn't otherwise. And if you're not someone who wants to be going into their bank account each and every day, fiddling with their balances, I am certainly not that person, then the automatic transfers will be a huge perk. The sweeping is automatic, so you don't have to set reminders or manually move your money around every day. And then there's the flip side. Who are sweeps accounts not right for? Well, if you're looking for the most potential return possible, sweeps accounts are not the best fit

for you. These accounts are not going to make you rich straight up. Even though your money earns interest, the rates are usually pretty low compared to other savings vehicles like CDs or even bonds. You might not see a huge return on that swept money. That's the tradeoff between rates and liquidity. Normally, you can snag a higher interest rate if you're committing to locking your money up for a longish period of time. But overnight, not so much. Another thing to watch out for is that some banks require you to have a pretty hefty minimum balance to make a sweep account worth it. So if your checking account is hovering close to zero right now, this probably isn't the best option for you. And that call out is similar for small businesses, too. If you're

an entrepreneur and not keeping that much extra in your account, the benefit of sweeping funds might not outweigh the hassle. And lastly, you got to look out for fees always. Depending on your bank, there could be fees associated with setting up or maintaining a sweeps account, and those fees can eat away at any interest you're earning. So if you've done your own cost benefit analysis here and you've decided your own cost-benefit analysis here and you've decided that a sweep account is right for you, see what options your bank offers. But also, I'd shop around. Not all sweeps accounts are created equal. I know I mentioned that typically bank sweep accounts put your money into a money market deposit account. Some banks do actually

sweep money into money market funds, which again are not FDIC insured. Plus, your bank might not have the best rate. Even if your bank does sweep money into an FDIC insured account, that doesn't mean your bank is going to find you the best interest rate out there. Always compare what you could get in a high yield savings account or another low risk investment. Net net for me personally, I have my money in a lot of different places. In higher-risk vehicles like the stock market, lower-risk vehicles like bonds, savings accounts like high-yield savings accounts, and for the money I need liquid for paying things like rent, I am using a sweeps account. And I have to say, I'm really into it.

For today's tip, you can take straight to the bank. In sweeps accounts, like pretty much every good moneymaker, Uncle Sam wants his cut. The interest you earn on the money that's swept into that higher yield account is considered taxable income. That means you're going to have to report it on your tax returns. And depending on how much interest you earn, it could potentially move you into a higher tax bracket. So just make sure you set a little aside for taxes, especially if your earnings are significant. Keep in mind, this doesn't make sweeps accounts a bad deal. More money is always a good thing. But sweep account taxes are definitely something to factor into your overall financial strategy. One of the most stressful periods of my life was when I was in credit card

debt. I got to a point where I just knew that I had to get it under control for my financial future and also for my mental health. We've all hit a point where we've realized it was time to make some serious money moves. So take control of your finances by using a Chime checking account with features like no maintenance fees, fee-free overdraft up to $200, or getting paid up to two days early with direct deposit. Learn more at Chime.com slash MNN. When you check out Chime, you'll see that you can overdraft up to $200 with no fees. If you're an OG listener, you know about my infamous $35 overdraft fee that I got from buying a $7 latte and how I am still very fired up about it. If I

had Chime back then, that wouldn't even be a story. Make your fall finances a little greener by working toward your financial goals with Chime. Open your account in just two minutes at Chime.com slash MNN. That's Chime.com slash MNN. Chime feels like progress. Banking services and debit card provided by the Bancorp Bank N.A. or Stride Bank N.A. Members FDIC. SpotMe eligibility requirements and overdraft limits apply. Boosts are available to eligible Chime members enrolled in SpotMe and are subject to monthly limits. Terms and conditions I love hosting on Airbnb. It's a great way to bring in some extra cash. But I totally get it that it might sound overwhelming to start, or even too complicated, if, say, you want to put your summer home in Maine on Airbnb, but you live full-time in San Francisco and you can't go to Maine every time you need to change sheets for your guests

or something like that. If thoughts like these have been holding you back, I have great news for you. Airbnb has launched a co-host network, which is a network of high quality local co-hosts with Airbnb experience that can take care of your home and your guests. Co-hosts can do what you don't have time for, like managing your reservations, messaging your guests, giving support at the property, or even create your listing for you. I always want to line up a reservation for my house when I'm traveling for work. But sometimes I just don't get around to it because getting ready to travel always feels like a scramble, so I don't end up making time to make my house look guest-friendly. I guess that's the best way to put it. But I'm matching with a co-host so I can still make that extra cash while also making it easy on myself. Find a co-host at Airbnb.com slash

host. Money Rehab is a production of Money News Network. I'm your host, Nicole Lappin. Money Rehab's executive producer is Morgan Levoy. Our researcher is Emily Holmes. Do you need some money rehab? And let's be honest, we all do. So email us your money questions, moneyrehab at moneynewsnetwork.com to potentially have your questions answered on the show or even have a one-on-one intervention with me. And follow us on Instagram at moneynews and TikTok at moneynewsnetwork for exclusive video content. And lastly, thank you. No, seriously, thank you.

Thank you for listening and for investing in yourself, which is the most important investment you can make.