Banks Retool Sweep Account Offerings To Beef Up Their Small-Business

A growing number of banks are rounding out their small-business product lines with sweep accounts.

The banks are using the products, which place excess cash in higher- earning accounts, as tools to lure prospects and retain customers.

Customer demand caused Richmond, Va.-based Signet Bank to offer the accounts in 1993, said Lynn Dalton, assistant vice president of small- business marketing.

"They wanted investment income on their excess cash," she said of Signet's business customers. "Savings rates were too low and the large sweep account was not priced to meet their needs."

"It's the banks' way of maintaining deposits," said Les Dinkin, managing principal of NBW Consulting Group, Westport, Conn. "The Merrill Lynches of the world are offering them."

A 1996 survey of small-business banking by the Consumer Bankers Association bears out the industry's interest. Of the 58 respondents, 53% said they are offering the sweep deposits and 21% said they plan to offer them in the next 18 months.

KeyCorp, Cleveland, plans to bring an account to market within the next 45 days. It already offers a "jury-rigged" product, said senior vice president Sandy Maltby.

KeyCorp's current product places excess deposits in overnight repurchase agreements and creates more paperwork than either the bank or the business wants, Ms. Maltby said. The new product would sweep funds into KeyCorp's Victory mutual funds.

Sweep accounts pose a potential threat because they could create disintermediation within the banks' deposits - a serious consideration because bank interest margins are bolstered by demand deposit accounts, Mr. Dinkin said.

Banks try to moderate the runoff by setting a minimum threshold for the sweeps and charging a fee.

For instance, KeyCorp plans to set a threshold of about $25,000 and charge a monthly fee of about $75, Ms. Maltby said.

Ms. Maltby said the bank must offer the product to meet the market demand.

"It's not a make-or-break product for a small business, but it is in the upper third of products a business is looking for," she said. "The ability to manage cash and optimize cash flow is important for them."

Officials of BankAmerica Corp., San Francisco, and Norwest Corp., Minneapolis, said they also are looking at developing such an account.

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