Fixed Deposit Sweep-in is an extended facility provided by banks and financial institutions to their customers. This is a facility in which the excess of the funds in a particular account gets transferred into a fixed deposit across different tenure options. The amount which gets transferred into a Fixed Deposit earns a higher rate of interest as compared to the normal savings account.
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How to Avail Sweep-in Facility?
Customers who want to avail sweep-in facility should follow the below-mentioned procedure –
- A customer who wants to avail this facility must opt for a savings account option with an auto sweep in facility
- Savings account balance above the threshold limit provided by the bank will get automatically transferred into a fixed deposit
- The account holder can opt for any specific FD tenure option provided by the bank
Let’s understand Sweep in the facility with the help of an example:
If a customer has Rs. 1 lakh in their savings account and the threshold limit for a sweep in is Rs. 35,000 then any amount above Rs. 35,000 i.e. Rs. 65,000 gets automatically transferred into a fixed deposit. Let’s say the account holder deposits Rs. 10,000 more into his account & make cheque payments of Rs. 5,000, then the amount in excess of Rs. 35,000 which is Rs. 5,000 (Rs.35000 + Rs.10000 – Rs.5000) will be added to the fixed deposit amount.
Note: The interest lost will be only on the amount that is swept and not on the full amount that is there in the deposit.
Things to Keep in Mind before Availing FD Sweep-in the Facility
Every bank has its own terms and conditions relating to fixed deposit sweep-in facility. Some of the parameters are discussed below:
Threshold Limit: There are some banks who have a fixed threshold limit while there are banks who gives an option to set a limit as per the customer’s own wish. A bank which offers lower threshold limit can help in earning higher returns on one’s savings.
Interest Rates: The interest rates which the bank offers on the sweep in a facility are similar to the normal fixed deposit options provided by the bank. Senior Citizens can avail preferential interest rate with a sweep in the facility as well.
Deposit Tenure: The customer should always know the tenure options available with a sweep in FD facility. Deposit tenure for a sweep in the facility may vary from one bank to another. Banks may also charge a penalty in case of premature withdrawal.
Withdrawals: Customer should be aware of the withdrawal process. Account-holders can make withdrawals or payments for any specific amount available in their account. If the withdrawal or payment amount is more than the funds available in the savings account, then the bank will take the balance amount from the fixed deposit.
Taxation: The interest earned on Fixed Deposit (more than Rs. 10000 p.a.) is added to the income of the account holder and is taxable as per the income tax slab.
Advantages of Fixed Deposit Sweep-in Facility
Below-mentioned are the advantages of fixed deposit sweep-in facility:
- Customers do not lose the interest on Fixed Deposit, they only lose interest on the amount drawn via the sweep-in facility.
- Account-holders can get higher returns than a regular savings account.
- There are several banks which offer the customer a facility to link multiple fixed deposits to avail the facility of sweep-in.
What is a Sweep-out FD Facility?
If the account holder needs to make a payment of a certain amount but does not have sufficient funds in his / her savings account, then the bank will take the balance funds from the fixed deposit amount.
For example, if the customer has Rs. 10,000 in his/her savings account with the Fixed Deposit of Rs. 25,000 and he/she want to make a cheque payment of Rs. 15,000 in such a case, the customer who is short of Rs. 5,000 can withdraw money from the fixed deposit to make the payment.