Fixed deposits can provide a higher interest rate compared to a regular bank account. Nevertheless, the drawback is that they lack the flexibility and liquidity of a savings account. This is where sweep in FD becomes useful.
What is a Fixed Deposit Sweep In?
A sweep-in fixed deposit (FD) is a specialised type of FD that enables you to automatically move surplus funds from your savings account into an FD account. This allows you to benefit from higher interest rates on your savings while maintaining the flexibility to access your funds during emergencies.
How Does the Sweep In FD Work?
The sweep in FD is available exclusively to eligible investors. Those who qualify and hold a bank account with the same bank as their fixed deposit (FD) can choose this service. First, you must link your bank account, whether a savings or current account, to your FD. Then, you need to set a minimum balance for your bank account. Whenever the account balance exceeds this set limit, the bank automatically transfers the surplus in multiples of ₹1,000 to the FD.
A better way to understand how a fixed deposit sweep-in works is to do it through an example. Let’s assume that you have chosen the sweep-in facility and wish to keep ₹30,000 in your bank account for expenses, and the current balance is ₹25,000. Any additional deposits will be managed accordingly. If you deposit or receive an additional ₹20,000, bringing the balance to ₹45,000, the bank will transfer the excess ₹15,000 to the FD account. This excess amount will accrue the same interest rate as the FD. Furthermore, you can withdraw the extra funds from the FD account without incurring any charges or penalties, meeting your short-term financial needs.
How to Apply for Fixed Deposit Sweep In Facility?
The easiest way to apply for the sweep in FD is through the online process. Follow the steps outlined below to apply for the fixed deposit sweep in FD:
- Step 1: Start by logging into your online banking account.
- Step 2: Select the 'FD Sweep in' option, which can be found under the FD tab.
- Step 3: Choose the savings account number and the FD number that you want to link for the sweep-in.
- Step 4: Click 'continue' and then 'confirm' to activate the facility.
What are the Benefits of an FD Sweep In?
An FD sweep-in facility has several benefits, making it an attractive financial product. Here is the list of advantages of a sweep-in FD that will allow you to make better financial decisions:
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Flexible and Liquid
With the sweep-in fixed deposit facility, your FD is broken into small units that can cover several transactions, making it possible for your funds to be available when you need them the most. This allows you to take advantage of the returns you get on an FD and the liquidity of a savings account.
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High Interest Rates
Any funds exceeding the savings account threshold will automatically earn higher interest rates, similar to those offered on fixed deposits.
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No Overdraft Fees
The sweep-in fixed deposit facility avoids overdraft fees by ensuring the savings account has sufficient funds through automatic transfers.
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Automate Transfers
With the sweep-in FD facility, you can automate the transfer of your surplus savings without manually doing it, making finance management simpler.
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Easy Setup
Setting up your sweep-in fixed deposit facility is simple. You can do it through a mobile banking app, internet banking, or even your nearest bank branch.
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Financial Discipline
With the sweep-in FD facility, you can develop the habit of regular savings, which is one step towards developing financial discipline in your life.
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Smooth Transactions
Guarantees seamless handling of checks and debit transactions, eliminating the inconvenience of declined payments or inadequate funds.
What is the Difference Between a Sweep In FD and a Flexi Deposit?
Sweep-in fixed deposits and flexi FDs, both offer the dual benefits of high interest rates and liquidity. A sweep-in feature can be added to a traditional fixed deposit account, while a Flexi deposit is an entirely distinct system.
In a flexi deposit setup, you need to manually deposit funds into your fixed deposit account. They also have the flexibility to withdraw the money at any time, even before the term ends. This arrangement allows for both high returns and liquidity within a single plan, enabling you to deposit and withdraw funds as needed.
With a flexi deposit scheme, any surplus funds in the savings or current account are automatically transferred to the fixed deposit. Once you reach the threshold limit, you do not need to open a new FD account. Additionally, there are no fees, charges, or penalties for breaking the FD. However, you only lose the interest on the amount withdrawn from the sweep-in account.
What are the Factors to Consider for an FD Sweep-In?
The sweep-in FD feature is useful for people who want to benefit from higher interest rates on their savings while maintaining the flexibility to access their funds during emergencies. Here are all the features you need to know of an FD sweep-in to take advantage:
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Bank Account Linking
It's crucial to link the sweep-in fixed deposit (FD) account to a current or savings account. Additionally, banks require investors to hold a bank account with the same institution as the FD to utilise the auto sweep-in feature.
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Term of Sweep-In FD
Auto sweep-in FD has a flexible tenure that ranges between one to five financial years.
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Minimum Investment Limit
Typically, banks transfer excess funds from savings accounts to sweep-in fixed deposits in increments of ₹1,000. Nevertheless, some banks also permit transfers within the range of ₹1 to ₹1,000, based on the investor's instructions.
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Eligibility Criteria for FD Sweep-In
Not all investors have access to the sweep-in facility. To be eligible, an investor must have at least ₹25,000 invested in a fixed deposit (FD). Additionally, investors holding a premium account with a minimum balance between ₹25,000 and ₹1,00,000 are also eligible to choose the sweep-in facility for their FDs.
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Interest Rate
The interest rate for a sweep-in fixed deposit (FD) account will be comparable to that of a regular FD and will be determined by the FD's term length. The additional funds invested through the sweep-in facility will accrue the same interest as the FD. This setup enables investors to earn a higher return on their surplus funds compared to a savings account.
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Withdrawal Conditions
You can access the surplus funds placed in the fixed deposit (FD) through the sweep-in facility without breaking the whole FD. Thus, investors only forgo the interest on the portion of the swept-in funds they withdraw while the rest of the FD continues to earn interest. Additionally, the bank does not impose any fees or penalties for withdrawing the swept-in funds from the FD.
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Minimum Balance Requirement
Various banks may set different thresholds for the minimum balance required for sweep-in fixed deposits. It's important to be aware of the minimum amount necessary in your savings account to initiate the sweep-in mechanism. This knowledge will assist you in preserving the desired liquidity while also capitalising on the appealing interest rates offered on your extra funds.
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Tax Implications on Fixed Deposit Sweep-In
The interest rate earned on your sweep-in FD may be subjected to tax implications according to the existing income tax rules. It’s best to get a financial or tax advisor to come in to help you with the tax implications.
Freo’s FD Account at Your Service!
Freo’s FD makes opening an account from the comfort of your home effortless. Conveniently transfer funds from your savings account to your FD and benefit from some of the best FD interest rates out there.
FAQs:
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What is a sweep-out facility?
The exact opposite of the sweep-in facility is the sweep-out facility, which is for any deficit in your savings account. In this facility, the deficit amount in your savings account is transferred from your FD account to your current or savings account.
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What is the minimum balance required to initiate a sweep-in fixed deposit account?
You need a minimum balance of ₹25,000 in your account to utilize the sweep-in FD service.
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Are sweep-in fixed deposits subject to taxation?
Yes, the interest earned on sweep-in fixed deposits is subject to tax.
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Is it possible to withdraw funds from my sweep in FD?
Yes, you can access and withdraw funds from your sweep-in fixed deposits at any time.
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Can the sweep-in facility be applied to multiple deposits?
Yes, you can connect a single bank account to one or more fixed deposits and benefit from the sweep-in feature even if you have multiple deposit accounts.
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Is it possible to link a fixed deposit to two different bank accounts for the sweep-in facility?
It is not possible to connect two bank accounts to a single fixed deposit for the sweep-in facility. Only one savings or current account can be linked to one fixed deposit for this purpose.
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Does the sweep-in facility invest both the principal and interest of the fixed deposit?
No, the sweep-in facility only considers the principal amount of the fixed deposit.
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Is the sweep-in facility available for those who already have a fixed deposit?
Yes, individuals can link their existing fixed deposit to their savings or current account to use the sweep-in facility.
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Are sweep accounts secure?
Yes, sweep accounts are secure, as they are managed by the same bank that holds your fixed deposit and savings or current account. However, it is recommended that you monitor the sweep account regularly.
