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Understanding Two-Way Sweep: Automating Cash Management

Our automation aims to help make cash management easier, by seamlessly moving your extra cash from your linked checking account to Betterment Everyday™ Cash Reserve—and back when you need it.

Articles by Volodymyr Chernat

By Volodymyr Chernat
Senior Quantitative Researcher, Betterment  |  Published: October 22, 2018

We’ll run a daily cash analysis to determine whether your linked checking account holds too much, too little, or just the right amount of cash.

Then, we’ll automatically sweep cash back and forth between your checking account and your Betterment Everyday™ Cash Reserve account, as needed.

Two-Way Sweep automates our advice regarding your extra cash by seamlessly transferring your cash back and forth between your checking account and Betterment Everyday™ Cash Reserve. You can rest easy knowing that Betterment is helping you handle your everyday cash management while also helping you earn more.

TABLE OF CONTENTS

  1. How is the target balance for my checking account determined?
  2. What if my checking account holds too much cash?
  3. What if my checking account holds too little cash?
  4. Can I set my own target balance range for my checking account?
  5. Setting Up Two-Way Sweep
  6. How can I turn off Two-Way Sweep?

How is the target balance for my checking account determined?

Two-Way Sweep utilizes our cash analysis feature to monitor your linked checking account daily and aims to keep the account balance between the lower and upper bounds. Each day, Two-Way Sweep will re-estimate the lower and upper bounds.

  • The lower bound is computed as an aggregate of 21 days worth of expected cash expenses.
  • The upper bound is computed as an aggregate of 35 days worth of expected cash expenses.
  • These 21 and 35 day horizons are specific timeframes chosen to minimize the amount of idle cash in your checking account while also providing enough cash to meet expected cash expenses in the near future.

No cash transfer takes place if your checking account balance currently falls between the lower and upper bounds.

If you prefer to set your own target balance range, you can set your own minimum and maximum balance. This gives you additional control and flexibility to set a range that works for you and that you are comfortable with.

What if my checking account holds too much cash?

Having too much cash sitting on the sidelines in a checking account causes idle cash drag and hurts your earnings potential. If our daily analysis finds that your checking account holds more cash than is needed to cover your next 35 days of expenses, Two-Way Sweep will automatically transfer your extra cash into Betterment Everyday™ Cash Reserve, up to $5,000 per sweep.

We use Betterment Everyday™ Cash Reserve, our high-yield cash account, as our default destination for your extra cash. There may be other products you might also consider for earning a high yield on extra cash, but the advantages of our cash management suite in terms of yield and liquidity make it an ideal spot for your extra cash within Betterment.

After the sweep into Betterment Everyday™ Cash Reserve is complete, another sweep in will not occur again for at least seven days, as a rule. If you initiate a manual withdrawal from your Cash Reserve account to your checking account, Two-Way Sweep will be automatically paused for two weeks, with the assumption that you plan to use the funds and don’t want them to be swept back to Cash Reserve right away. While a transfer is in progress, we will not initiate any additional sweeps, either to or from Betterment Everyday™ Cash Reserve.

We will notify you via email before a sweep takes place. You have until 12 PM EST the following day to cancel the sweep, either through the link in the email, or in your account.

What if my checking account holds too little cash?

If, on any given day your linked checking account balance falls below the cash amount we project you’ll need in the next 21 days (the lower bound), Two-Way Sweep will transfer cash back to your checking account from Betterment Everyday™ Cash Reserve.

The sweep will transfer back enough cash to restore your checking account balance to the midpoint between your lower and upper bounds (as calculated on the day of the transfer).

The maximum that we will transfer to your checking account is the total balance of what’s in your Betterment Everyday™ Cash Reserve account. If the balance is less than the amount needed to bring your checking account balance back to the midpoint of your lower and upper bounds, after the transfer your checking account balance will still be below the midpoint.

We will notify you via email before a sweep takes place. You have until 12 PM EST the following day to cancel the sweep, either through the link in the email, or in your account.

Can I set my own target balance range for my checking account?

Yes. If your bank requires you to hold a minimum balance, or you are aware of expenses that are not accounted for in our prediction of your lower and upper bounds, you can set your own target balance range for your checking account. This gives you additional control and flexibility to set a range that works for you and that you are comfortable with.

Note that Two-Way Sweep does not guarantee that your checking account balance will not drop below the lower bound.

Setting Up Two-Way Sweep

1. Link your checking account.

You will need to electronically link your checking account if you have not already done so.

2. Open Betterment Everyday™ Cash Reserve.

In order to use Two-Way Sweep, you must first have Betterment Everyday™ Cash Reserve. Click on “Add New” and follow the prompts to open your high-yield cash account.

3. Review your cash analysis results.

Once Cash Reserve is set up, choose it from the menu on the left. You will then see a cash analysis box. Click on “View Analysis” to see if you have any extra cash.

4. Configure your Two-Way Sweep settings.

  • If extra cash is found, you’ll be able to make a deposit and then turn on Two-Way Sweep.
  • If no extra cash is found, you can still turn the feature on. Simply choose Cash Reserve from your account list on the left, click “Deposit” on the right, and the deposit flow will give you the option to set up Two-Way Sweep.
  • If you prefer to set your own target balance range, you can set your own minimum and maximum balance for your checking account.
  • We will notify you via email before a sweep takes place. You have until 12 PM EST the following day to cancel the sweep, either through the link in the email, or in your account.

How can I turn off Two-Way Sweep?

  • Log in and select Cash Reserve.
  • Scroll down to the Accounts section.
  • Under “recurring deposits”, click “edit” next to Two-Way Sweep.
  • You can now update your settings, such as adjusting your checking account’s target balance range.
  • You’ll also be able to turn Two-Way Sweep off.

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Betterment Everyday Cash Reserve

Betterment Everyday Cash Reserve (“Cash Reserve”) is offered by Betterment LLC. Clients of Betterment LLC may participate in Cash Reserve through their brokerage account held at Betterment Securities. Neither Betterment LLC nor any of its affiliates is a bank. Through Cash Reserve, clients’ funds are deposited into one or more banks (“Program Banks“) where the funds earn a variable interest rate and are eligible for FDIC insurance.  Cash Reserve provides Betterment clients with the opportunity to earn interest on cash intended to purchase securities with through Betterment LLC and Betterment Securities.  Cash Reserve should not be viewed as a long-term investment option.

Funds held in your brokerage account are not FDIC-insured but are protected by SIPC. Funds in transit to or from Program Banks are generally not FDIC-insured but are protected by SIPC, except when those funds are held in a sweep account following a deposit or prior to a withdrawal, at which time funds are eligible for FDIC insurance but are not protected by SIPC. See Betterment Client Agreements for further details.  Funds deposited into Cash Reserve are eligible for up to $1,000,000.00 of FDIC insurance once the funds reach one or more Program Banks (up to $250,000 each at  up to four Program Banks). Even if there are more than four Program Banks, Clients will not necessarily have deposits allocated in a manner that will provide FDIC insurance above $1,000,000. The FDIC calculates the insurance limits based on all accounts held in the same insurable capacity at a bank, not just cash in Cash Reserve. If clients elect to exclude one or more Program Banks from receiving deposits the amount of FDIC insurance available through Cash Reserve may be lower. Clients are responsible for monitoring their total assets at each Program Bank, including existing deposits held at Program Banks outside of Cash Reserve, to ensure FDIC insurance limits are not exceeded, which could result in some funds being uninsured.  For more information on FDIC insurance please visit www.FDIC.gov. Deposits held in Program Banks are not protected by SIPC. For more information see the full terms and conditions and Betterment LLC’s Form ADV Part II.

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