Top Three Features to Look for in a Retail Sweep Program


Recently, my colleague discussed the top features to look for in a branch cash management software solution. This week, I want to discuss the features you should look for in a retail sweep program, also known as Deposit Reclassification. Retail sweep programs help banks and credit unions recover their Federal Reserve balances due to reserve requirements, through reclassifying transaction accounts as savings accounts. In today’s rising rate environment, reclaiming low earning funds allows an institution to invest in other revenue streams and increase profitability.

Here are the top three features to look for in a retail sweep program:

1. Optimized sweep percentages

Most retail sweep programs use either target balance or threshold flat sweeping percentages for every transaction account, and while this does reduce Fed balances, sometimes it leads to a partially swept Fed Balance. Ensure the retail sweep program you select for your institution optimizes sweep percentages based on the type of account and how the customer typically uses the account. If an account has higher volatility, i.e. free college checking and an average balance of $500, the retail sweep program should sweep a lower percentage into a savings sub-account to avoid too many accounts hitting their seventh transfer, which violates Regulation D. As a reminder, when an account hits the seventh transfer, the entire balance must remain in the checking sub-account for the remainder of the month, which is a reservable status. Too many balances in a reservable status will spike the reserve requirement and could spike the Fed balance due to reserve requirements.

2. Semi-automated

It’s a common misconception that 100 percent automation is 100 percent accurate. While it may seem great to click one button to turn on a retail sweep program and never have to think about it again, this can lead to a slew of problems on FR2900s and call report data. We all know good data in, is good data out and bad data in, is bad data out. If nobody is watching the data, the program is easily forgotten about which can lead to a big mess and an unnecessary spike in reserve requirements. A retail sweep program that is semi-automated allows the financial institution to pay attention to the file and data, and add or delete product codes as necessary because it is more top of mind. A quick check every day and click of a button allows the bank to catch errors ahead of time as opposed to days, weeks or years later.

3. Provides guidance during implementation

“Compliance” is a word that bankers hear daily, and is a common concern during the implementation of retail sweep programs. Ensure you choose a vendor and retail sweep program that understands the necessary steps in complying and adhering to regulations, as well as your financial institutions’ term and conditions. You should look for vendors who understand proper disclosure language for customers and members, and provides templates and instructions to help your institution comply with regulations during implementation.

Retail sweep programs are a perfect solution for financial institutions looking to reduce their Fed balance due to reserve requirements. However, not every retail sweep program is created equal and produces the same results. Make sure to look for a software that optimizes sweep percentages, is semi-automated to capture newly opened transaction accounts and makes meeting compliance and disclosure simple.


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