Banks that offer corporate sweep accounts are cleaning up.
Revenues generated by these accounts-which automatically invest their cash balances at the end of the day-have nearly doubled in each of the last two years, according to a new study.
Experts attribute the surge in the accounts' popularity to corporate downsizing, which has left many large companies without full-time treasurers. Part-time treasurers are turning to sweep accounts as an easy alternative to actively managing cash accounts.
Small-business owners are also embracing the product as a way to deal with excess cash.
"People are calling me saying they've never invested before, and now they find themselves with pools of cash," said Carol Bierce, product manager at First Chicago NBD Investment Management Co.
Sweep account revenue at banks hit $1.34 billion in 1996, according to Treasury Strategies, Chicago. That's close to double the $691 million they reaped in 1995 and more than triple the $385 million they generated in 1994.
Assets in sweep accounts grew 143% in the past two years, with 472 of the 510 largest banks offering commercial sweep account products, according to the study. The average sweep account has a balance of $679,000.
Bank of New York Co. has offered its Checkinvest sweep product to corporate customers since 1981. But in the last few years, an increasing number of entrepreneurial small-business owners have been requesting the product, said Peter Birnbaum, vice president and product manager for Checkinvest.
The bank last year repositioned and repriced Checkinvest to make it more affordable and appealing to small-business owners, Mr. Birnbaum said. Bank of New York offers to sweep balances into 12 to 14 different investments, including its own money market funds as well as products managed by outside firms.
According to Treasury Strategies, the number of banks that offer their proprietary funds to sweep customers increased 25% over the last two years. The number of banks that offer third-party funds jumped 83% during that time.
"Overall, banks are offering more investment options than they had, so customers are finding more (options) that meet their investment policies," said Ms. Bierce of First Chicago NBD.
The fastest growing category of sweep accounts, the study found, is money market mutual fund sweeps. In 1996, $26.3 billion was invested in money market funds, up from $2 billion in 1991.
"The money going into money market funds at banks like PNC, NationsBank, and Citibank helps make their in-house mutual funds more viable," said Anthony J. Carfang, a partner at Treasury Strategies.