Rising interest rates may not be good news for homebuyers or credit card holders, but they are spurring small banks across Connecticut to start to emphasize investment opportunities like sweep accounts for their commercial clients.

William J. McGurk, president and chief executive officer of Rockville Bank, said he has started to hear radio commercials for the accounts on his trips to New York.

“[Sweep accounts] are starting to be advertised,” he noted.

Sweep accounts have been around for awhile, but are becoming more popular as interest rates rise. According to American Banker’s Web site, sweep accounts are defined as a deposit account that periodically removes a portion of the customer’s funds into a higher yielding instrument, like a money market account. The frequency of the “sweep,” or transfer of money, varies.

Businesses like the concept because the accounts allow them to have access to their money – most banks will either put the money back into the checking account in the morning after spending the night earning interest in a money market account, or will automatically transfer back the money when it is needed.

Banks like the accounts because they usually prompt clients to keep large balances in the same bank.

‘Sizeable Balances’

Guilford Savings Bank has been offering the accounts for about a year. So far, about 10 businesses use them, but as the Federal Reserve continues to increase interest rates, the bank likely will start to emphasize the accounts more, according to Tim Geelan, senior vice president and senior loan officer at the bank.

The bank started the accounts as a way to maintain relationships and show customers that it was concentrating on its commercial offerings. When it first started, it was not too popular because Fed funds were next to nothing, so customers would not have been earning much money. The bank offers Fed funds minus 25 basis points, so now it is at about 3.25 percent.

“Which isn’t bad for overnight money,” Geelan said.

Now that the rate is up, customers such as a hardware store and an auto dealership are using the accounts.

“You’ve got to carry some pretty sizeable balances to make it worth it,” Geelan said.

Bankers from Guilford Savings’ commercial side will be talking about the accounts more as they go out and have face-to-face meetings with commercial clients, Geelan said. But before any business opens a sweep account – which carries normal commercial banking fees, like per-check fees – bankers do an analysis to determine if it will be worth it for the business. Geelan also expects to see some active promotions emphasizing the accounts.

“We have hopes going forward,” he said.

At Guilford Savings, the sweep account takes a balance that is predetermined by a banker and the customer and sweeps it into a money market account. The money stays there overnight, then automatically is transferred back into the checking account.

“It’s transparent,” Geelan said. “That’s the beauty of it. They don’t have to manage it.”

The automatic sweeps are a big draw, according to McGurk. Before sweep accounts, some commercial customers would do the sweep automatically.

Amounts and frequency of the sweep depends on the business using the account, McGurk said. The account is best for businesses that keep high balances, like grocery stores. The frequency of the sweep can change to suit the needs of a business. If a retail store keeps a high balance for much of the year, but then needs that money to buy for Christmas, the sweep can be done twice a year, when the balance in the checking account is high, then can go back into the checking account when needed.

Most banks do it every night, however, so that the balance that is sitting in the checking account unused earns interest.

The accounts are a way for businesses that generally keep high balances in their checking accounts to get the best of both worlds, McGurk said. Some banks sweep the money out of the checking account to a money market account at night, then sweep it back in the morning. That allows the bank to look at the money as a high balance in a checking account, which can help the business get lower rates on commercial loans.