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Maximising Your Savings: The Ultimate Guide to Sweep-In Fixed Deposit Mechanisms
Posted on Monday, May 27th, 2024 | By IndusInd Bank
Banks and financial institutions keep innovating their products as per the changing needs of their customers. The concept of sweep-in fixed deposit feature is also a result of innovation, considering the growing need for a savings product that can offer higher returns with easy access to money. This article aims to provide a comprehensive overview of the sweep-in fixed deposit feature – how it work, its benefits, and the crucial points to note before you invest.
What is a sweep-in fixed deposit?
A sweep-in fixed deposit is an innovative savings product that most banks offer. It is a combination of a fixed deposit and savings account. The mechanism of such accounts is quite simple. If a savings account with a threshold limit of ₹50,000 to book the auto sweep FD reaches a balance of ₹1,00,000, the exceeding amount of ₹50,000 is automatically booked as a sweep-in fixed deposit. The FD tenure and interest rate vary from bank to bank. If the balance of this account is ₹25,000, and a cheque for ₹40,000 hits it, the balance ₹15,000 (40,000 – 25,000) is automatically taken from the sweep-in FD worth ₹50,000 while clearing the cheque.
Also Read: Top 5 reasons to invest in a Fixed Deposit
What are the key features and benefits of a sweep-in fixed deposit?
- Higher returns: You can book a sweep-in fixed deposit from your savings or current account. With this, excess money above the threshold limit specified is moved to a fixed deposit account to earn the interest higher than the savings account.
- Maximum liquidity: If you run short of funds in your savings or current account to meet your needs immediately, you can liquidate funds from a sweep-in fixed deposit.
- Automatic funds management: Sweep-in FD puts your idle money to earn higher interest by automatically transferring the balance above the threshold to auto-sweep FD. Similarly, it automatically transfers from a fixed deposit to your savings account if you run short of balance.
- Auto-renewal: Sweep-in FD also has an auto-renewal feature, which rebooks the fixed deposit on its maturity.
- Flexibility: Sweep-in fixed deposit offers flexibility to choose the threshold limit to book the FD. It also provides an option to request a premature withdrawal (may include penalties and charges depending on the bank’s policy) during the tenure, along with an auto sweep facility. You can choose the tenure when opting for a sweep-in facility. Auto-sweep FD interest rate may also vary accordingly.
Also rRead: How is a Fixed Deposit better than other investments?
Important points to keep in mind
The following are some of the crucial points to keep in mind while opting for a sweep-in fixed deposit facility:
- Know the minimum and maximum limit for the fixed deposit that can provide a sweep-in facility as set by the bank.
- It is important to select the right tenure to leverage the higher interest rate. Compare the auto sweep FD interest rate with other savings or investment options.
- Be aware of charges and penalties applicable for the premature withdrawal of sweep-in FD.
- Understand the applicability sweep-in threshold limit and sweep-out frequency to make an informed decision.
- Sweep-in fixed deposits have the same tax implications as fixed deposits. Hence, keep the tax implication in mind while opting for the facility.
In conclusion, sweep-in fixed deposits are attractive savings products that offer the best of both products – savings account and fixed deposit. Understanding the sweep-in fixed deposit mechanism can help you streamline your savings management process. You can invest your idle money to maximise savings while enjoying maximum liquidity.
Disclaimer: The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information.
