Fixed deposit sweep-in: Here’s everything you need to know

Despite the crashing interest rates, fixed deposits (FD) have remained as a preferred instruments of investment for a large number of people. Irrespective of age most people in India prefer putting their money into bank FDs. They are valued since they are safe and the returns are not uncertain. But liquidity becomes an issue with FDs which might become a disadvantage since none knows when there will be sudden need of funds for medical emergencies.

If you withdraw funds prematurely from FDs you might face penalties. However, there are some special types of FDs which don’t attract any penalty even in the case of premature withdrawal.

Some prominent lenders like SBI, HDFC, BoB, ICICI, Axis, Kotak Mahindra, PNB and others offer this facility. This is called ‘sweep-in’ facility. This facility is generally linked with a savings account, some banks also called this as 2 in 1 account.

Main objective

The “sweep-in” facility allows your bank to transfer any sum in excess of the amount stipulated by you from your savings account to a sweep-in fixed deposit. The tenure of the deposit varies from one year to five years, and the interest rates also vary accordingly. But by and large, the amount transferred is likely to earn you a higher rate than savings interest rate.

Different banks have different names for this specific ‘sweep-in’ facility. For instance, SBI’s savings plus account basically serves the same purpose. Any excess amount in the savings account is automatically transferred to a sweep-in deposit in multiples of Rs 1,000. HDFC Bank offers it as a sweep-in fixed deposit while ICICI Bank calls it a flexi deposit.

The only difference between a sweep-in facility and a flexi deposit is that in the first case, the bank automatically opens the fixed deposit to sweep the surplus funds, while in the latter case, customer will have to manually give a nod to start the sweep-in deposit.

When required specific amount from the FD comes to the savings account which is linked and you can use it. But banks will not charge any penalty upon withdrawal.

Example

In a sweep-in account, the account holder has to decide the minimum amount that needs to be kept in their savings account. Any amount beyond that limit in the saving account will automatically get transferred to their FD.

Further, when money is needed by the account holder, the bank just transfers (sweeps-in) funds to the savings account.

For instance, if you have Rs 2 lakh in your savings account, and you set the limit to Rs 50,000, the rest Rs 1.5 lakh will get transferred to your fixed deposit account. And in case you require more than Rs 50,000, the deficit will be filled by transferring funds from your fixed deposit accounts into your savings account without any penalty.

The rest amount in FD will yield the same interest rate as per the tenure.

Benefits

Advantage of the ‘sweep-in’ facility is that it forms a separate corpus that you can dip into during emergencies, without touching your regular investments or having to liquidate FDs. And even for the liquidation no penalty will be incurred by the bank.

Besides, the remaining amount in FD will fetch the same interest rate as earlier and liquidate after the tenure. The facility does work well for those who maintain substantial idle balance in their savings account.

Check before you go

Only a few banks give the opportunity to the customers to set the threshold limit, while others have a fixed threshold limit ranging between Rs 20,000 and Rs 1 lakh.

Apart from the threshold limit, most banks also ask to maintain a minimum average balance ranging from Rs 1,000 to Rs 20,000 in the savings account.

Also, check the maximum and minimum tenure of your FD account as the tenure of the sweep-in FDs are mostly fixed between one and five years.

However, the interest earned in a savings account or a FD under certain section of the IT Act is exempt from taxes up to Rs 10,000 a year.