Auto Sweep FD Benefits; High Interest Rate Savings Account Minimum Balance

saving The account is often used for everyday transactions. People do not keep much money in this, because generally the interest in savings account is very less.

For better returns, people turn to fixed deposits (FD). The problem with FD is that the money gets locked. This means that money cannot be withdrawn during the lock-in period of FD. The bank imposes a penalty for doing so.

To overcome this problem, many banks are providing the facility of such saving accounts, in which by depositing money, interest equal to FD can be earned. There is neither any need to fix the money nor is there any penalty for withdrawing the money as per need. This option is especially beneficial for those people who keep a good amount of money in their savings account for some time.

so today ‘Your money’ In the column, we will know how to get interest like FD on savings account.

Expert: Rajasekhar, Financial Expert

Question- What kind of savings accounts are these, in which interest is equal to FD?

answer- The annual interest on savings account usually ranges from 2.5% to 3.5%. Whereas on FD this rate ranges from 6% to 7.5%.

But now many banks are providing the facility of ‘High Interest Saving Account’ or ‘Auto Sweep’ account, in which money more than the fixed limit is transferred like FD and interest is given on it at FD rate. These are called auto sweep accounts or flexi fixed deposits.

Question- What is Auto Sweep Account or Flexi Fixed Deposit?

answer- In this facility, your savings account works like a normal savings account up to a certain limit. As soon as the money exceeds this limit, the extra amount is automatically converted into a linked FD, on which the interest equal to the FD is given.

Suppose, the fixed limit of your account is Rs 25,000. If Rs 40,000 comes into the account then Rs 15,000 will automatically go into the FD. When you need money and your savings balance is low, this FD will automatically break and the amount will go back to your savings account. With this you also get better interest and you can withdraw money immediately if needed. There is no hassle of breaking FD here.

Question- What are the benefits of auto sweep facility?

answer- The auto sweep facility is beneficial for those who have a large amount deposited in their savings account. But at the same time they do not want to block their money for a long period. They may need to withdraw money from the account at any time. They want to get good interest and the money should not be locked in the FD.

In this type of account, the amount exceeding the prescribed limit is automatically transferred to the FD, which gives good returns. When needed, the FD is broken and the money comes back to the savings account. This maintains liquidity, keeps money safe and gives better interest without any effort.

Question- What should be done to get better interest in high interest savings account?

answer- Generally, banks give higher interest to such customers who keep a good amount of money in their account regularly. Apart from this, some fintech apps in collaboration with their banking partners provide interest facility of up to 6.75%.

Maximum balance should be maintained in high interest savings account for better interest. This gives better returns without any separate investment.

Question- Can this be applicable to all savings accounts?

answer- No, this feature is not automatically applicable to every savings account. Usually this option is offered to High Net Worth Individuals (HNI), Premium or Digital Savings Accounts. However, now many banks have started providing facilities like auto sweep to ordinary savings account holders also.

For this, a separate request may have to be made or certain conditions have to be fulfilled. It would be better if you contact your bank to know whether this facility is available in your savings account or not and how it can be activated.

Question- What is the process for Auto Sweep FD?

answer- To avail the facility of Auto Sweep FD, first of all you have to activate it from your bank. For this you can take help of online banking, mobile app or bank branch.

At the time of activation, you have to choose a fixed limit, like Rs 25,000 or Rs 50,000. Whatever money comes into the account in excess of this limit will automatically be converted into FD. When needed, this FD gets broken and the amount comes back to the savings account. This keeps the money safe and also gives better interest.

Question- Can this be availed online also?

answer- Yes, the facility of Auto Sweep FD can be availed online also. Today most banks and digital banking apps give the option to activate it through net banking or mobile app.

Some banks offer this facility at the time of opening the account, while many banks provide the facility to turn it on later. There is no need to go to the branch for this and this facility can be activated in a few clicks.

Question- What are its disadvantages?

answer- Auto sweep FD does not have many disadvantages, but it is important to understand them. In some cases the interest is taxable or a penalty may apply. Let us understand in simple language through graphics.

Let us understand the points given in the graphics in detail-

Tax exemption is not available

The interest received from Auto Sweep FD is completely taxable. Tax has to be paid on this as per your income tax slab. There is no tax exemption like Section 80C, which is available in tax saving FD. Therefore, this option is not very attractive for those investing for the purpose of saving tax.

Interest rate may be lower than normal FD

Some banks offer slightly lower interest rates on auto sweep FD than regular FD. The reason is that the FD can break quickly if needed. In such a situation, long term investors get relatively less returns.

Reduction in interest due to early break

When the savings account balance goes below the prescribed limit, the bank breaks the FD. This is often due to the shorter tenure at which the interest rate is lower or the bank may deduct a penalty of 0.5% to 1%. This reduces the total interest.

It is necessary to maintain minimum balance

It is necessary to maintain a prescribed minimum balance in an account with auto sweep facility. If the balance falls below this, the bank can impose penalty or even stop this facility.

Every bank has different rules

FD tenure, interest rate, sweep-in limit and conditions for breaking FD vary from bank to bank. Taking this facility without proper information may result in loss. For example, in some banks the sweep starts at Rs 25,000, while in others it starts at Rs 1 lakh.

Interest is less in short term FD

FDs made in sweep-in accounts usually have a tenure of 180 days or less. The interest received on this is less than that of long term FD, which may disappoint those seeking higher returns.

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