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A savings account is one of the most important financial tools to have. It lets you save money, accumulate interest on your balance, and efficiently handle everyday expenses. However, oftentimes, a significant amount of money remains idle in your savings account, leading to missed opportunities for higher interest earnings. Moreover, with rising inflation rates, simply leaving your money in a savings account means it loses value over time. Auto sweep facility in savings accounts helps in such situations. Auto sweep facility is important because it allows you to earn higher interest rates on your idle funds without having to lock them in an FD.
Understanding auto sweep facility in savings accounts
Auto sweep facility is offered by various banks that allows account holders to set a minimum threshold in their savings account, beyond which any surplus amount is automatically transferred to a Fixed Deposit (FD). It will be done in multiples of Rs. 5,000, Rs. 10,000, or your chosen amount, as per the agreement with your bank.
Here is how it works. Suppose you have Rs. 80,000 in your savings account, and the threshold is Rs. 40,000. In this situation, the facility will sweep the excess amount of Rs. 40,000 to an FD linked to the savings account. It means you will earn higher FD interest on the swept amount, while the savings account continues earning interest on the remaining balance.
The facility automatically breaks the FD and transfers the required amount to the savings account when you need extra funds or have insufficient balance. This is known as a reverse sweep. However, note that the transferred money will not earn FD interest rates. Hence, it is advisable to avoid frequent transactions if you have enabled auto sweep in savings accounts.
Features of auto sweep facility in savings account
- Combines a savings account with an FD– This unique feature ensures that you earn FD-like interest, which is still higher than the interest rates you would receive from a regular savings account.
- Flexible access to funds– You can use the available savings account balance to withdraw cash from ATMs, issue cheques, and even shop online. With the auto sweep feature, you can use your savings as seamlessly as possible, with no restrictions to stop spending.
- Shorter tenure FD– The FD is usually created for a tenure of 180 days, which means greater flexibility to access your funds.
- No penalty on premature withdrawals– With an auto sweep savings account, you don’t have to pay the penalty for withdrawing your FD before its maturity. This feature makes sure that you always have access to the funds you need without any delays.
Optimise your savings with auto sweep facility: A smart banking solution
Auto sweep facility is a useful feature that maximises the value of your savings account. Simply enquire if your bank offers this feature, which may be called ActivMoney or have a different name. If your bank offers this facility, you can enable it in your existing savings account. If not, you can easily open a savings account online with another bank.
Auto sweep facility in savings accounts will reduce the effort that you need to put in to manage your funds, as you do not need to manually transfer surplus funds to FDs. You just need to maintain the account balance above a certain threshold, and the rest of the excess funds will be automatically swept into the linked Fixed Deposit, earning FD-like interest.
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