The conditions of bank scanning programs vary. Cash protection in a bank derives primarily from banking laws and regulations, including FDIC deposit insurance. Using a sweeping vehicle like a sweep fund works by offering the customer the largest amount of interest with the minimum amount of personal intervention by transferring money to a high-interest account at the end of the day. In a scanning program, a bank`s computers analyze customers` use of verifiable deposits and scan funds in money market accounts. Businesses and individuals should keep an eye on the cost of sweep accounts, as the benefits of higher returns from investment vehicles outside the checking account can be offset by the fees charged to the account. Many brokers or banking institutions charge a flat fee, while others charge a percentage of the return. Note: Interest rates on sweep/reverse repurchase agreements are set by the bank and are subject to change on a daily basis. You may want to take advantage of the financial and other information available to consumers on the FDIC website in research.fdic.gov/bankfind/. A relevant consideration when assessing the bank`s health may be the percentage of deposits from concentrated sources such as negotiated deposits or one or more bank sweep agreements. Other factors to consider when evaluating your broker-dealer`s bank scan program include: Broker-dealers can offer you several options for managing your money. One option, a bank scan program, is usually to automatically transfer (or “swipe”) money from the brokerage account to a deposit account with a bank that may or may not be associated with the broker-dealer. Other options include leaving money in the brokerage account or transferring money to one or more money market funds. This warning to investors focuses only on the first option: bank scan programs.
Money paid into deposit accounts through bank sweep programs is covered by FDIC insurance up to a maximum of $250,000 per customer at each FDIC-insured bank participating in the bank scan program. Therefore, it is important to know how much money your broker-dealer has paid to each FDIC-insured bank participating in your broker-dealer`s bank scan program at any given time, as money in those accounts that exceeds the $250,000 limit is not protected by FDIC insurance. You can determine how much money is in your bank accounts from your brokerage bank statements or by contacting your brokerage firm. Scan accounts for individual investors are typically used by brokers to park money waiting to be reinvested, such as dividends, incoming cash deposits, and money from sell orders. These funds are typically dumped into high-yield deposit accounts or money market funds until an investor makes a decision about future investments or until the broker can already execute standing orders within the portfolio. If you have more than $250,000 in cash through your broker-dealer`s bank scan program, consider the following: Learn if your bank is insured, check locations, track history, etc. You may want to check the details of the bank scan program to understand how your broker-dealer, your bank(s), and all other administrators of the scanning program are paid for the scanning program. You can ask your broker-dealer representative to provide you with the details of these compensation agreements. An online tool that allows depositors to determine how insurance rules and limits apply to a specific group of deposit accounts – what is insured and how much (if any) exceeds that bank`s coverage limits. Most broker-dealers retain a portion of the interest paid by the bank(s) as a fee for the provision of bank scanning services.
This fee reduces the interest rate you receive on your money as part of the bank scan program. You can check with your broker-dealer if there are other cash management options that can offer you a higher return on your money. When determining the best option for your money, remember to carefully consider the costs, risks, and benefits of each option. What is my broker-dealer`s relationship with the custodian bank(s)? A scan account is a bank or brokerage account that automatically transfers funds that exceed or fall below a certain level at the end of each business day into a higher interest investment option. In general, excess liquidity is poured into a money market fund. Depending on the institution and the investment vehicle, the scanning process is usually set daily by the current account, while the return of funds may experience delays. With changes to the chequing account rules, some banking institutions also offer high interest rates on amounts above certain balances. You should also know that most broker-dealers give them the responsibility to monitor your cash balance so that you don`t lose FDIC insurance coverage. You should check your cash balances with any bank participating in your broker-dealer`s sweep program to make sure that no cash balance exceeds FDIC insurance coverage or (if so) that you feel comfortable having uninsured money with a participating bank.
If this is offered by your broker-dealer, you may want to sign up for notifications or other forms of notification about the amount of FDIC insurance coverage in order to improve your ability to monitor the FDIC insurance coverage of your money. The Federal Deposit Insurance Corporation (FDIC) is an independent agency of the U.S. government that protects funds that depositors place in banks and savings banks. .