A sweep-in FD will allow investors to invest excess funds lying idle in a bank account in a fixed deposit account to earn higher returns. Not only can they earn a higher FD rate of interest, but they can also withdraw money from the FD without breaking it to meet their short-term requirements. This article covers sweep-in FD, its features, advantages, and how it differs from Flexi-FD in detail.
What is a Sweep-In FD?
The sweep-in facility in a fixed deposit allows investors to transfer their excess funds in the bank account to their FD account hence giving them an opportunity to earn higher returns. The tenure of the sweep-in FD ranges from one to five years, depending on the bank. Investors can state the amount that they want to hold in their savings account and current account, and the rest will be automatically transferred to the sweep-in FD account.
This allows investors to earn higher returns on their surplus money and also allows investors to dip into the FD in case of emergencies. Investors can draw funds from the FD without any fees or penalties to meet their short term requirements.
Features of a Fixed Deposit Sweep-in Facility
Linking bank account to sweep-in FD account
It is important that the current or savings account is linked to the sweep-in FD account. Also, all banks insist that the investor should have a bank account in the same bank as the FD to avail sweep-in facility.
Banks usually transfer surplus money in the savings account to sweep-in FD in multiples of INR 1,000. However, certain banks also allow transfers in the range of INR 1 – INR 1,000 as per the instructions given by the investor.
The term of a sweep-in FD ranges from one to five financial years.
The rate of interest for the sweep-in FD account will be similar to any normal FD and will depend on the term of the FD. The excess amount that is invested through the sweep-in facility will earn the same interest as the FD. Also, it allows investors to earn a higher return than the savings account on the surplus money.
Not all investors are allowed to avail of the sweep-in facility. An investor who has invested a minimum of INR 25,000 in the FD is eligible for a sweep-in facility. Alternatively, investors who have a premium account with a minimum balance ranging from INR 25,000 to INR 1,00,000 can opt for the sweep-in facility on their FDs.
The excess amount invested in the FD through the sweep-in facility can be withdrawn without breaking the entire FD. Therefore, investors are not losing out on interest on FD but only the swept-in money that is withdrawn. Moreover, the bank will not charge any fees or penalty for withdrawing the swept-in money from the FD.
How Does the Sweep-In Facility Work?
The sweep-in facility is available only for eligible investors. Investors who are eligible and have a bank account in the same bank as their FD can opt for a sweep-in facility. Firstly, investors have to link their bank account, either savings account or current account, to their FD account. Secondly, they have to set a limit for the balance to be maintained in their bank account. Every time the bank account has excess funds, the bank will automatically transfer them in multiples of INR 1,000 to the FD account.
Let’s understand this better with an example if an investor has opted for the sweep-in facility and wants to maintain INR 30,000 in the bank account for expenses. The current balance in the account is INR 25,000. Suppose the investor has received or deposited INR 20,000 in the account, making the total balance INR 45,000. In that case, the bank will transfer the excess INR 15,000 to the sweep-in fixed deposit account. The excess INR 15,000 will earn the same interest as the FD. Also, the investor can withdraw the excess money invested from the FD account without any extra charges or penalties to meet their short term requirements.
How Can You Avail of the Sweep-In FD Facility?
Eligible investors can avail of the sweep-in FD facility through both online and offline modes. Investors can avail the facility online by visiting the bank’s website or net banking facility. Alternatively, investors can also visit the branch of the bank physically to avail the sweep-in FD facility.
For either online or offline, investors have to follow the steps below:
Firstly, link the savings account or current account with the FD account.
Secondly, set the bank account limit as per the requirement. The excess amount above this limit will be transferred to the FD account automatically by the bank.
Finally, select the term for which the sweep-in facility will be active. There are usually fixed tenures offered by the bank, and investors have to select from the options given. Also, the sweep-in facility will be active only during the term selected by the investor.
What are the Advantages of Investing in Sweep-In FD?
Higher FD Rates
With the sweep-in option, the depositor enjoys high interest from the fixed deposit. While still having liquidity of a bank savings account. Also, the interest earned will be higher than the savings account. Also, one doesn’t lose interest on the fixed deposit. They only lose interest on the amount swept or drawn.
A sweep-in facility offers the best form of liquidity. The funds seamlessly get transferred from the savings account to the FD account.
Multiple account linking
Depositors can link more than one FD account to a savings account. This also ensures high liquidity.
Banks offer flexibility to depositors to choose the period of deposit, maturity and payment. Depositors can pick the balance to be maintained in the current or savings accounts.
No additional charges
There are no additional charges for sweep account like in the case of an overdraft facility levied by banks. Also, there is no penalty for premature withdrawals.
What is a Flexi Fixed Deposit?
As the name suggests, a Flexi fixed deposit is a deposit scheme that offers high flexibility and convenience to the depositors. It is a combination of an FD and a savings account. The scheme ensures that the depositors get benefit from high interest rates offered by FD along with the liquidity of a savings account.
Depositors can choose the tenure and the investment amount based on their financial position. Also, most banks allow premature withdrawals from Flexi FDs. Furthermore, investors can also avail of loans on the Flexi deposits based on the policies of the bank. Banks also offer auto-renewal of Flexi fixed deposits, and the account holders need not worry about renewing them.
What is the Difference Between Sweep-In FD and Flexi FD?
Both Sweep-In FD and Flexi FD offer the same benefit of high interest rates along with liquidity. A sweep-in facility is an added feature to a regular fixed deposit scheme. At the same time, a Flexi deposit is a separate deposit scheme in itself.
In a Flexi deposit scheme, the investor has to add money to their fixed deposit account manually. Also, they can withdraw the amount at any time, i.e. prematurely. Hence, the facility of high returns and the liquidity to invest and withdraw any time is available in a single scheme.
While in a Flexi deposit scheme, any excess amount in the savings or current account is automatically swept into the fixed deposit. The depositor can choose the threshold limit, and when the limit is reached, the account holder isn’t required to open a new FD account. Also, there are no fees or charges or any penalties for breaking the FD. The depositors only lose the interest rate on the amount withdrawn out of the sweep-in account.
Frequently Asked Questions
A sweep-out facility is exactly the opposite of a sweep-in facility. If there is a deficit in the savings account, the deficit amount is transferred from the FD account to the savings or current account. You have to link your FD account to your savings account for availing this facility. You also have to set the minimum balance that they want to maintain in your savings account. Therefore, anytime there is a deficit, it will be restored automatically from the FD account to your savings account.
Yes, investors can link one bank account to one or multiple fixed deposits.
No, investors cannot link two bank accounts to one FD for the sweep-in facility. They can only link one savings or current account to one FD for a sweep-in facility.
No, for a sweep-in facility, only the principal amount of the fixed deposit is considered.
Yes, one can link their existing fixed deposit to their savings or current account to avail the sweep-in facility.
Yes, sweep accounts are safe as they are operated by the same bank with which you have your fixed deposit and savings/ current account. However, it is advisable to keep track of the sweep account on a regular basis. This is to ensure that you do not lose a big amount from the deposit corpus by paying huge charges or fees.