15 June 2024 | By INDIE
A sweep-in Fixed Deposit (FD) allows account holders to enjoy the high interest rates of a fixed deposit while maintaining liquidity in their savings account. Through the automatic sweep-in facility, surplus funds over a minimum threshold in the linked savings account get transferred to the FD. This helps earn higher returns without compromising on easy access to money. Read on to explore the key features of this hybrid investment instrument.
A sweep-in fixed deposit links a savings account to one or more fixed deposits. The bank sets a threshold balance that must be maintained in the savings account. Any funds exceeding this minimum in the savings account automatically get "swept" into the fixed deposit on a daily, weekly, or monthly basis depending on the bank's rules.
The funds get transferred back to the savings account if it falls below the minimum threshold due to withdrawals. This automatic sweep-in and sweep-out of funds provides flexibility while still earning the higher interest rate of a fixed deposit.
The sweep-in funds get transferred to the FD on which the customer would earn the applicable interest rate. This rate is usually higher than the savings account rate. For example, if the bank offers 6% on a 1-year FD, funds swept into this FD would earn 6% annual interest. Any amount over the threshold gets this higher return without needing manual transfers between accounts.
INDIE Fixed Deposits offer interest rates of up to 7.75% per annum, which is one of the best in the industry. Another core advantage of INDIE Fixed Deposits is the 100% digital process of booking and managing your FDs. Download the INDIE app by IndusInd Bank today!
A key benefit of auto sweep FDs is you don't lose interest on the entire deposit amount if you withdraw early. Unlike traditional FDs where you forfeit all interest for premature withdrawals, sweep-in FDs deduct interest only on amounts withdrawn – not the full principal. This flexibility makes it suitable for those needing occasional access to funds without compromising returns.
Some banks allow customers to link multiple savings accounts or FDs to a single sweep-in option for better fund management. This lets you sweep balances from varied sources into a common FD. Both balances and interest earnings can be monitored under one account for simplicity.
A sweep-in FD combines the higher returns of a fixed deposit with the ease of a savings account. You earn higher interest without sacrificing liquidity or access to funds. It ensures funds lying idle in savings earn maximum returns. Online access makes managing sweep transfers effortless.
Interest income from sweep-in FDs is taxable as per your tax slab under the Income Tax Act. The interest is added to your total income and tax is deducted accordingly.
Pros
● Earn higher fixed deposit interest rates while maintaining liquidity
● Flexible access to funds without penalty on partial withdrawals
● Simplicity of managing balances across accounts under one system
● Potential to sweep idle balances from multiple sources into one FD
Cons
● Not suited if frequent withdrawals are planned that may eat into returns
● Higher minimum balance criteria can deter those with lower balance levels
● Complexity of explaining tax on the interest income from such hybrid instruments
● FD sweep interest rate may still be lower than multi-deposit interest rates
A sweep-in fixed deposit allows enjoying returns of fixed deposits while maintaining easy access to funds. Online monitoring and convenient sweep-in sweep-out options make it transparent to manage multiple accounts under one system.
However, one must evaluate personal liquidity needs and bank minimum criteria before opting for this hybrid saving instrument. With careful selection and usage, it can optimally enhance interest income from surplus balances lying idle in savings accounts.
Disclaimer: The information provided in this article is generic and for informational purposes only. It is not a substitute for specific advice in your circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any financial decisions based on the contents and information.
