Fixed deposits offer higher interest rates than regular savings bank accounts. This makes them a preferred investment avenue for investors. However, unlike savings accounts, FDs do not offer the same level of liquidity to the investor. The auto FD sweep-in facility helps bridge this gap.
A sweep-in FD account allows you to auto-transfer surplus funds from your savings account into an FD account and earn higher interest yields. Sweep-in fixed deposits essentially blend the liquidity of savings accounts with the better yields of FDs to help you earn more on your idle funds.
In the following sections, we cover the meaning of fixed deposit sweep-in, as well as its components and benefits in detail. Understanding these nuances can help you avoid common mistakes while investing in FDs.
Fixed deposit (FD) sweep-in meaning
A sweep-in facility in an FD account allows investors to automatically transfer surplus funds from their savings or current account to an FD account. Depositors can easily withdraw the excess funds from the FD account to meet emergency cash requirements. No penalties are levied on the withdrawn sums, and the rest of the FD corpus will keep earning interest income at the applicable rate. This allows investors to benefit from higher FD interest rates on their idle funds while ensuring easy liquidity.
How does a sweep-in FD work
A sweep-in FD facility works by linking the depositor’s savings or current account to their FD account. The depositor has to set a threshold limit for their linked savings or current accounts. Every time the funds in the linked savings account exceed this present limit, the bank auto-transfers the surplus to the linked sweep-in FD account.
Let us understand this with an example. Your savings account holds Rs. 50,000, and you have opted for a sweep-in FD facility. You have set the threshold limit at Rs. 30,000. Once your salary of Rs. 30,000 is credited, the total balance in your savings account stands at Rs. 80,000. With the auto sweep-in facility activated, the bank transfers the surplus Rs. 50,000 to your linked FD account. This surplus amount earns the same interest as applicable on the FD account. You can also withdraw this surplus sum from the FD account to meet short-term requirements without incurring penalties.
Also Read: Right Time to Invest in a Fixed Deposit
Components of fixed deposit sweep-in
Parameter |
Details |
Investment tenure |
The investment tenure for a sweep-in FD account can range from 1 to 5 years. |
Linked accounts |
A sweep-in FD can be linked to a current or savings account held in the same bank. |
Minimum investment amount |
Banks auto-transfer funds from linked accounts in multiples of Rs. 1,000. However, the sweep-in amount can vary from one bank to the next. |
Interest rate |
The applicable interest rate is similar to regular FDs and depends on the length of the investment tenure. |
Withdrawals |
Partial withdrawals from the excess amount in the sweep-in FD account are allowed, typically free of charge. |
Eligibility |
Investors with an existing FD of Rs. 25,000 or premium account holders with a minimum balance requirement of Rs. 25,000 to Rs. 1,00,000 can opt for the sweep-in FD facility. |
How to apply for a sweep-in FD facility
To initiate a request for the FD sweep-in facility, you need to follow these steps:
Step 1: Log in to your net banking account using your credentials.
Step 2: Navigate to the ‘Fixed Deposit’ section and click the ‘FD Sweep-In’ option.
Step 3: Enter details of your savings account and FD accounts you wish to link via the sweep-in facility.
Step 4: Set the threshold limit for the linked savings bank account. Surplus funds over this limit will be auto-transferred to the FD account.
Step 5: Select a term for the auto sweep-in facility.
Step 6: Review all the information provided and click ‘Confirm’ to activate the facility.
Benefits of fixed deposit sweep-in
- Automated savings optimisation: The FD sweep-in facility automatically manages your finances by transferring surplus funds to ensure better earnings without manual interventions.
- Better interest yields: The FD interest rate for 1-year deposits tends to be much higher than the interest paid on savings account deposits of the same value. By auto-sweeping the excess funds to the linked FD account, the sweep-in facility allows depositors to benefit from higher FD interest rates. Moreover, you only lose interest on the amount withdrawn.
- Easy liquidity: Sweep-in FD accounts offer ample liquidity benefits to the depositor. You can easily withdraw funds from the surplus deposited into the FD account to meet financial emergencies. In other words, you can maintain liquidity without breaking the FD.
- No add-on charges: There are no additional charges on sweep-in FD accounts. Even premature withdrawals made from the account are free from penalties.
- Flexibility: The sweep-in facility offers investors the flexibility to choose the period of activation as well as the threshold for their linked accounts. This way, you can maintain a disciplined yet flexible approach to saving and investing.
Difference between a sweep-in and flexi deposit
Both flexi FDs and sweep-in FD accounts offer depositors the benefits of high interest rates and easy liquidity. Under both, investors can prematurely withdraw funds without breaking the FD. While their goals are similar, both differ in terms of structure and operation. Firstly, the sweep-in feature can be introduced into an already existing regular FD account. However, a flexi deposit is a completely different fixed deposit account.
Secondly, for flexi FDs, depositors need to manually deposit funds into their fixed deposit accounts. In the case of sweep-in FD accounts, this deposit system is automated. Funds exceeding the mandated threshold limit in the depositor’s linked savings accounts are auto-transferred by the bank into the FD account. Depositors only need to set a one-time mandate for the same.
Conclusion
A sweep-in FD account is perfect for investors looking for liquidity without losing out on higher returns. The auto sweep-in facility also helps streamline financial management by eliminating the need to open multiple FD accounts as you keep accumulating idle funds. Instead, this facility allows the bank to auto-transfer surplus funds to the linked FD, where they earn higher interest than savings accounts until withdrawal or maturity.
If you want higher yields on your FD investment, opt for a corporate FD. Options like the Bajaj Finance FD bring you high interest rates of up to 8.60% p.a. on a low minimum investment amount. Additionally, with flexible tenures and payout options, you can customise your Bajaj Finance FD to suit your liquidity requirements and financial strategy.
