The money in your bank savings account is earning hardly any interest amount. This is because, for most leading banks, the interest rates in savings accounts are in the range of 2.7 per cent to 4 per cent, although it may differ depending on the amount. Some banks offer higher rates of interest on savings accounts of up to 6 per cent on savings provided you keep a higher amount in them.
The biggest advantage of funds lying in a savings account is the liquidity it provides at the time of need. But, what if you want to move funds from a savings account into bank deposits and still have the access when there is any requirement?
The solution is to open a sweep-in account in a bank, which essentially provides a higher interest rate than a savings account and yet keep the funds liquid. In a sweep-in account, you earn the interest rate of FDs and get liquidity as that of a savings account. In most banks, the FD interest rate is higher than what is offered in savings account. “In a sweep-in account, when your savings account balance crosses a certain threshold limit, the surplus money is put into an FD. This ensures that the money does not sit idly in the savings account when it could be earning higher interest rates,” says Adhil Shetty, CEO, BankBazaar.com.
In simpler terms, this is how a sweep-in account works – If you have Rs 1.2 lakh in a savings account, you can keep Rs 20,000 in a savings account and move the balance of Rs 1 lakh as FD. If you need any amount above Rs 20,000, the money from FD can be accessed without losing interest on balance amount.
Not all banks may be offering these accounts to their customers and even those who offer them may have specific conditions attached to it. “Most banks have an auto-sweep savings account product that customers could opt for. However, every bank structures the auto-sweep accounts differently and has different terms and conditions associated with such products,” says Shetty.
How they differ
Two important things you need to keep an eye on while opening sweep-in account with banks are – minimum average balance and the threshold limit. “Different banks have different structures for their auto-sweep facility. For instance, one bank may set the minimum average balance (MAB) as Rs.25,000, while another may set it at Rs.50,000. Yet another bank may allow you to set the minimum average balance beyond which the money in your SB account would be moved to an FD. The threshold limit of the FD may also be fixed by the bank,” says Shetty.
Not all of these may work out for you for various reasons. For instance, a bank may fix the MAB at Rs.40,000 and the FD threshold at Rs.10,000. So, if you have Rs.100,000 in your SB account, the Rs.60,000 will be automatically moved into 6 FDs of Rs.10,000 each. When you withdraw cash, the funds in the savings account are used. In case you have insufficient funds in your savings account, the deficit will be made good by withdrawals from your FD,” informs Shetty.
Sweep-in accounts may not work to a bigger advantage in all cases. “If you make withdrawals frequently from the FD, you will lose out on interest, no matter how much you put into the account. This is because the interest is calculated taking into account the number of days the FD was with the bank. Thus if the FD tenor was for a year, but you withdrew a sum within 45 days, then the interest applicable will only be for 45 days.
Also, if you don’t keep the money for at least 30 days, most banks will offer a much lower interest on the FDs. This means that it is only beneficial for you to go for an FD if your tenor is longer than 30 days. Otherwise, you are better off with a savings account,” suggests Shetty.