The income in your bank savings account is earning hardly any interest quantity. This is due to the fact, for most top banks, the interest prices in savings accounts are in the variety of 2.7 per cent to 4 per cent, even though it may perhaps differ based on the quantity. Some banks supply larger prices of interest on savings accounts of up to 6 per cent on savings offered you preserve a larger quantity in them.
The greatest benefit of funds lying in a savings account is the liquidity it gives at the time of will need. But, what if you want to move funds from a savings account into bank deposits and nevertheless have the access when there is any requirement?
The answer is to open a sweep-in account in a bank, which primarily gives a larger interest price than a savings account and however preserve the funds liquid. In a sweep-in account, you earn the interest price of FDs and get liquidity as that of a 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 easier terms, this is how a sweep-in account operates – If you have Rs 1.2 lakh in a savings account, you can preserve Rs 20,000 in a savings account and move the balance of Rs 1 lakh as FD. If you will need any quantity above Rs 20,000, the income from FD can be accessed devoid of losing interest on balance quantity.
Not all banks may perhaps be supplying these accounts to their consumers and even these who supply them may perhaps have particular circumstances 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 essential issues you will need to preserve an eye on though opening sweep-in account with banks are – minimum typical 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 perhaps work out for you for numerous causes. For instance, a bank may perhaps repair the MAB at Rs.40,000 and the FD threshold at Rs.10,000. So, if you have Rs.one hundred,000 in your SB account, the Rs.60,000 will be automatically moved into 6 FDs of Rs.10,000 each and every. When you withdraw money, the funds in the savings account are utilized. In case you have insufficient funds in your savings account, the deficit will be made very good by withdrawals from your FD,” informs Shetty.
Watchouts
Sweep-in accounts may perhaps not work to a larger benefit in all instances. “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.