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Managing Your Money

Understanding Two-Way Sweep: Automating Cash Management

Our newest automation aims to help make cash management easier, by seamlessly moving your extra cash from your linked checking account to Smart Saver—and back when you need it.

Articles by Volodymyr Chernat

By Volodymyr Chernat
Senior Quantitative Researcher, Betterment  |  Published: December 4, 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 Smart Saver 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 Smart Saver. 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 additional padding for my lower and upper bounds?
  5. Setting Up 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.

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 Smart Saver, up to $5,000 per sweep.

We use Smart Saver as our default destination for your extra cash. As we’ve articulated in this comparison, there may be other products you might also consider for earning a high yield on extra cash, but Smart Saver’s advantages in terms of risk, yield, tax advantages, and liquidity make it an ideal spot for your extra cash within Betterment.

After the sweep into Smart Saver is complete, another sweep into Smart Saver will not occur again for at least seven days, as a rule. If you initiate a manual withdrawal from your Smart Saver 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 Smart Saver right away. While a transfer is in progress, we will not initiate any additional sweeps, either to or from your Smart Saver 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 Smart Saver.

Because we want to be cautious and help ensure your checking account has enough cash for the next 21 to 35 days, the sweep will transfer back enough cash to restore your checking account balance back to the upper bound (as calculated on the day of the transfer). The upper bound is the amount of cash we project you’ll need in the next 35 days.

The maximum that we will transfer to your checking account is the total balance of your Smart Saver account. If the balance is less than the amount needed to bring your checking account balance back to the upper bound, after the transfer your checking account balance will still be below the upper bound.

Can I set additional padding for my lower and upper bounds?

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 additional padding for Two-Way Sweep.

Both the lower and the upper bounds are parallel shifted by the padding amount. For example, if you set $1,500  of padding and our estimate of your bounds is $2,000 and $4,000 respectively, then the effective lower and upper bounds are now considered to be $3,500 and $5,500.

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 a Smart Saver account.

In order to use Two-Way Sweep, you must first have an open Smart Saver account. If you do not see Smart Saver in your list of accounts on the left hand side after logging in, click on “Add New” and follow the prompts to open a Smart Saver account.

3. Review your cash analysis results.

Once your Smart Saver 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 and set an amount of padding, if you’d like to.
  • If no extra cash is found, you can still turn the feature on. Simply choose your Smart Saver 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 and set an amount of padding, if you’d like to.

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