How FD Sweep-In Works: Convert Idle Savings into High-Interest Deposits
Many individuals maintain a savings account to keep their funds safe and accessible. However, a significant amount of money in a savings account remains idle, earning a relatively low-interest rate. To make the most of such funds, banks offer a feature called the FD Sweep-In facility. This facility enables account holders to maximize returns by converting surplus savings into Fixed Deposits (FDs) automatically. This article explains how FD Sweep-In works, its benefits, and why it is a smart choice for depositors looking to earn better interest on their idle funds. Additionally, we will explore the role of corporate fixed deposits in wealth management.
What is an FD Sweep-In Facility?
The FD Sweep-In is a financial facility provided by banks that allows customers to link their savings or current accounts with Fixed Deposits. When the balance in a savings account exceeds a pre-set limit, the surplus amount is automatically transferred into an FD, which earns a higher interest rate than the standard savings account.
This facility is particularly useful for individuals who maintain substantial balances in their savings accounts but do not want to lock their money in long-term FDs. It offers the flexibility of withdrawing funds when needed while still ensuring higher returns on excess balances.
How FD Sweep-In Works
The FD Sweep In facility works through an automated process that ensures seamless fund management. Here is a step-by-step explanation of how it functions:
Account Linkage: The customer needs to link their savings or current account with an FD account offered by the bank.
Threshold Limit Setting: The bank sets a predefined threshold amount for the savings account. Any balance above this threshold is automatically transferred to the FD.
Auto Transfer to FD: When the savings account balance exceeds the set threshold, the surplus amount is automatically converted into an FD, usually in multiples of a fixed amount (e.g., Rs. 5,000 or Rs. 10,000).
Higher Interest Earnings: The transferred amount earns interest at FD rates, which are typically much higher than savings account rates.
Auto Sweep-Out for Liquidity: If the savings account holder needs additional funds, the required amount is automatically transferred back from the FD to the savings account, ensuring liquidity while maintaining high-interest earnings.
Benefits of FD Sweep-In Facility
The FD Sweep-In facility offers several advantages that make it an attractive option for depositors:
1. Higher Interest Earnings
The most significant benefit of an FD Sweep-In is that it helps customers earn a higher interest rate on their idle funds. Instead of keeping money in a savings account at a lower interest rate (typically around 2.5-4% per annum), the surplus funds are transferred to an FD, which may offer interest rates between 5-7% or more.
2. Liquidity and Flexibility
Unlike traditional FDs that come with fixed tenure and penalties for premature withdrawals, the FD Sweep-In facility offers flexibility. If the account holder requires funds, the necessary amount is transferred back to the savings account without any penalty, ensuring easy access to money when needed.
3. Automatic Fund Management
Since the entire process is automated, the account holder does not need to manually transfer funds between accounts. This ensures that excess funds do not sit idle and earn lower interest.
4. Partial Withdrawals Without Breaking the FD
One of the best features of the FD Sweep-In facility is that when funds are required, the bank does not break the entire FD. Instead, it breaks the deposit in smaller units as needed, allowing the remaining amount to continue earning interest at FD rates.
5. No Extra Charges or Fees
Most banks do not charge any additional fees for availing the FD Sweep-In facility. This makes it a cost-effective option to maximize earnings.
6. Ensures Optimal Fund Utilization
By keeping only the necessary amount in a savings account and transferring the surplus to an FD, the FD Sweep-In facility ensures optimal fund utilization. This means the account holder can enjoy both liquidity and higher returns simultaneously.
Corporate Fixed Deposit: A Complementary Investment Option
While FD Sweep-In is an excellent way to maximize idle savings, individuals and businesses can also consider corporate fixed deposits to earn even higher returns. Corporate fixed deposit are term deposits offered by companies, typically providing better interest rates than traditional bank FDs.
Benefits of Corporate Fixed Deposits
● Higher Interest Rates: Corporate fixed deposits often offer better returns compared to bank FDs.
● Flexible Tenure: Investors can choose tenures based on their financial goals.
● Diverse Investment Portfolio: Adding corporate FDs can help diversify an investor’s portfolio and reduce risk.
Risks and Considerations
● Credit Risk: Unlike bank FDs, corporate FDs are not covered by deposit insurance, making it essential to choose highly rated companies.
● Liquidity Constraints: Premature withdrawal may incur penalties, depending on the issuing company.
How to Activate the FD Sweep-In Facility
Activating the FD Sweep-In facility is a simple process and varies slightly from bank to bank. Here’s how one can opt for it:
Contact the Bank: Visit the bank branch or check the bank’s online banking portal to see if they offer the FD Sweep-In facility.
Set a Threshold Limit: Choose the minimum balance that should be maintained in the savings account before surplus funds are transferred to an FD.
Define the FD Tenure and Multiples: The depositor may need to select the tenure of the FD and the amount in which the deposits will be created (e.g., Rs. 5,000, Rs. 10,000).
Enable Auto-Sweep Facility: Once all parameters are set, the bank will activate the facility, and the process will be automated.
Key Differences Between a Regular FD and FD Sweep-In
Conclusion
The FD Sweep-In facility is an excellent way to ensure that idle savings do not go to waste by earning minimal interest. By automatically converting surplus funds into high-interest FDs and allowing easy access when needed, this facility provides the best of both worlds—liquidity and better returns. Additionally, corporate fixed deposits serve as a complementary investment option for those seeking even higher interest rates. If you have a savings account with a substantial balance, opting for an FD Sweep-In facility and considering corporate FDs can be a financially rewarding decision.
Disclaimer: This article is published in association with Bajaj Finserv and not created by TNM Editorial.