Curated By: Business Desk
Last Updated: August 01, 2023, 10:56 IST
Auto sweep facility provides the benefit of liquidity.
The auto sweep facility is a combination of a fixed deposit (FD) and savings account.
Almost everyone these days has a savings bank account and receives an interest rate of approximately 2.50% to 5.50%, depending on the bank’s regulations. Many don’t know much about banking product investments like debentures, shares, or gold, and in India, most people choose Fixed Deposits (FDs) as they are a safe investment option, offer good returns and are easy to open.
But there is another similar option that allows your money to work better and incorporates it into your savings account. This is known as an auto sweep facility, that uses the amount lying in your savings account and generates better value. The auto sweep facility is a combination of a fixed deposit (FD) and savings account, i.e., your savings account is linked to your FD account and a monetary limit is set.
Whenever your monetary limit exceeds, the excess amount is automatically transferred to your FD account. This helps you to earn a higher rate of interest than receiving the average interest rate from your savings account. You are required to set a limit on the amount that you want to keep in your savings account and this is referred to as a threshold limit. So, whenever your amount exceeds, it is automatically transferred to your FD account. This process is technically referred to as sweep-in.
For example, you have a savings account with the auto sweep facility and the minimum amount required is Rs 5,000. You have deposited Rs 30,000 and the threshold limit is set to Rs 10,000. In this case, the excess amount i.e. Rs 20,000 will automatically be transferred to your FD account. This will help you to earn interest rates from both accounts. Though it is suggested that if you have an auto sweep facility in your savings account then don’t make frequent transactions.
If you want to withdraw money from your FD account that is transferred through the auto sweep facility, you don’t need to dissolve your FD. If your savings account balance reaches the lower limit, the amount will automatically be transferred to your savings account from the FD account. On the other hand, the auto sweep facility provides the benefit of liquidity and also the benefit of choosing the tenure of your EMI. Banks like the Bank of Maharashtra, the Bank of India, ICICI Bank and others provide auto sweep facilities to account holders.
