Banking What Is a Concentration Account? Concentration Accounts Explained in Less Than 4 Minutes By Cassidy Horton Cassidy Horton Instagram Website Cassidy Horton has researched and written hundreds of articles on banking, budgeting, loans, and more. She has been published on well-known personal finance sites including Clever Girl Finance, Finder.com, Money Under 30, and more. Cassidy has been quoted as a financial expert by MSN, LegalZoom, and Consolidated Credit. learn about our editorial policies Updated on December 31, 2021 Reviewed by Charlene Rhinehart Reviewed by Charlene Rhinehart Twitter Website Charlene Rhinehart is an expert in accounting, banking, investing, real estate, and personal finance. She is a CPA, CFE, Chair of the Illinois CPA Society Individual Tax Committee, and was recognized as one of Practice Ignition's Top 50 women in accounting. She is the founder of Wealth Women Daily and an author. learn about our financial review board In This Article View All In This Article Definition and Examples How a Concentration Account Works Pros and Cons of Concentration Accounts Concentration Accounts and Regulations Photo: Edwin Tan / Getty Images Definition Financial institutions use concentration accounts to process internal customer transactions as quickly as possible—usually within the same day. Think of them as large pools of money banks use to settle various transactions that occur throughout the day. Financial institutions use concentration accounts to process internal customer transactions as quickly as possible—usually within the same day. Think of them as large pools of money banks use to settle various transactions that occur throughout the day. Concentration accounts are good for banks because they allow them to settle internal transactions the same day. However, they’ve received a lot of flack over the years because these large pools of money make it difficult to spot suspicious activities. Find out how concentration accounts work and what banks are doing to minimize the risk of money laundering. Definition and Examples of a Concentration Account Concentration accounts are internal bank accounts used by financial institutions to process and settle same-day transactions for customers. They’re often used to expedite transactions for private banking, trust and custody accounts, fund transfers, and international constituents. Alternate names: special-use account, omnibus account, suspense account, settlement account, intraday account, sweep account, collection account For example, let’s say you run a corporation that has a zero balance account (ZBA) set up for each department in your company (e.g., the marketing department has its own ZBA, the IT department has another, HR has another, and so on). Because the purpose of ZBAs is to maintain a balance of $0, if any of them have cash in them at the end of the day, these funds may get swept into a larger concentration account for holding. How a Concentration Account Works Banks pride themselves on speed and efficiency. The prime purpose of a concentration account is to help them disburse funds as quickly as possible. Here are three examples of how a bank may use a concentration account to swiftly settle transactions. Sweeps Suppose that instead of needing to maintain a zero balance every day, you need to maintain a minimum balance in your account to avoid penalties and fees. If your bank has a sweeping feature where it will automatically move money from one account if your balance gets too low into another account, it may use a concentration account to quickly process this sweep. Transfers Let’s say you have a checking account and individual retirement account (IRA) with the same bank. You want to transfer money from your checking account to your IRA. Instead of making you wait a few days for the transaction to process, your bank may fund the transfer immediately using its concentration account. Storing Funds Suppose a national bank has regional branches located throughout the country. Instead of having each branch store its funds locally, its headquarters may use a concentration account to “pool” or collect any money held at a branch location that exceeds a certain threshold. Pros and Cons of Concentration Accounts Pros Allows banks to quickly process internal transactions Cons Can elicit money-laundering activities Pros Explained Allows banks to quickly process internal transactions: Concentration accounts allow banks to settle any transactions that occur within the banks on the same day, giving you faster access to your money. Cons Explained Can elicit money laundering activities: Due to pooling of funds, concentration accounts could be used for unlawful activities such as money laundering. As of 2001, the USA Patriot Act has put policies and procedures in place for banks to mitigate such activities. Concentration Accounts and Regulations One major concern with concentration accounts is that they may be used for money laundering—the act of sneaking money earned through illegal means into the financial system so it looks legitimate. To help prevent illegal activities on concentration accounts, Congress passed rules governing such accounts in the USA Patriot Act in 2001. It requires banks to put internal controls in place to monitor and report suspicious activity on concentration accounts. Some of these internal controls include: Having a bank-wide system in place that identifies which departments and individuals are authorized to use each concentration accountProhibiting customers from directly accessing funds in a bank’s concentration account (or even knowing details of said accounts)Maintaining accurate records of transactions and customer identification informationHaving accounts routinely reconciled by a third-party person not associated with the transactionEstablishing a timely process for resolving discrepancies Key Takeaways Concentration accounts are internal administrative accounts financial institutions use to promptly process and settle customer transactions—usually within the same day. Concentration accounts are primarily used to process transactions for private banking, trust and custody accounts, fund transfers, and international constituents.The USA Patriot Act of 2001 lays down rules for concentration accounts to prevent unlawful activities such as money laundering. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. Federal Financial Institutions Examination Council. "BSA/AML Manual." Accessed Oct. 27, 2021. U.S. Congress. "Uniting and Strengthening America by Providing Appropriate Tools Required To Intercept and Obstruct Terrorism (USA Patriot Act) Act of 2001," Section 325. Accessed Oct. 27, 2021.