California Federal of San Francisco has just joined the growing number of banks offering checking accounts with a "sweep" function that invests excess money in money market mutual funds.
Cal Fed has just extended its sweep offer to its retail customers, who, like Cal Fed's business customers, will be able to invest excess funds in their checking accounts in any combination of six money market mutual funds from SEI Investments of Oaks, Pa.
A handful of banks have extended the sweep function to their retail customers, said Peter Crane, vice president and managing editor of iMoneyNet of Westborough, Mass. Banks initially began offering money market mutual fund sweep accounts to business clients to get around a federal regulation preventing banks from paying interest on business checking accounts, Crane said. Banks were slow to offer sweep checking accounts to retail customers because of the relatively small size of these accounts, Crane said.
Now, banks are finding that offering the sweeps is a good way to increase their checking business, Crane said. Money market mutual funds can also attract assets by entering into sweep ventures with banks, Crane said.
There was a total of $220 billion invested in checking sweep accounts as of December 1999. Of this, 35 percent, or $77 billion, was invested in money market mutual funds, according to Treasury Strategies of Chicago.
This is only four percent to five percent of total money mutual fund assets, Crane said. But, "sweep accounts have been growing like gangbusters," Crane said.