What is sweep FD saving account? How does it works?

Last Updated on December 1, 2021 by Admin

Auto sweep FD saving account allows bank account holders to transfer their extra money to fixed deposits automatically as per the standing instructions setup by the bank in saving accounts. Once the balance exceeds beyond a certain limit in customer’s account then such extra amount automatically debited and fixed deposit is created for that much of amount which remain linked with saving account for future needs.

As and when any amount is needed in saving account to make any payment etc. then so much amount is automatically sweep in from the latest FD to saving account for maintaining the required minimum balance in the saving account of the customer.

Features of sweep FD saving account: –

1. Minimum balance is kept in saving account and amount over and above this get automatically transferred to fixed deposits e.g. if you have Rs.48000/- in your saving bank account and minimum balance requirement is for Rs.10000/- (depending on which variant you choose) then extra amount of Rs.38000/- will auto sweep to FD. However available balance in your account will always be shown including FD amount.
   
2. Fixed deposit is created for certain period, some banks create FDs for 180days and few banks do FDs for one year. However, these FDs can be liquidated any time when we need funds in saving account.
   
3. As compared to normal saving bank account, customers get more interest on balance kept in fixed deposits at par with traditional FDs and based on days of balance and interest applicable thereon.

How to open Saving account with Sweep in FD facility?

First of all you need to see which banks are available nearby which suits your location and other requirements. Many banks like SBI, ICICI Bank, HDFC Bank, Kotak bank, Yes Bank, IndusInd bank, IDFC First bank etc. provide the facility of sweep in FD in saving accounts and each bank have their on terms & conditions regarding maintaining minimum balance, FD amount, FD period and FD interest rate etc.

It is better to do little comparison among those banks in terms of facilities, services and FD interest rates etc. so that you pick best of them to open your savings account.

Then you may visit the bank branch and let them know that you want to open saving account with sweep FD facility. Now days most of the private banks provides door step services to new customers and your one call to them for opening new account will get this done.

Don’t be in hurry and check all the terms and conditions carefully so that there is no hidden shock later on. You have to be sure about their process of sweep in FD facilities, their applicable rate of interest on such fixed deposit balances etc. etc. Please make your own questions list and clear them before you go ahead.

Normally banks first open saving bank account for the customer after getting all necessary KYC documents, verifications and formalities of signature etc. Then they customize those saving accounts for linking the sweep in FD facility with those accounts.

Each bank has their own minimum balance criteria ranging from Rs.1000/- to Rs.100,000/-. They set the limit of auto sweep FD amount, duration of FD, apply rate of interest etc.

Few banks have pre-customized sweep FD accounts available to their customers but some banks like ICICI bank don’t have auto sweep FD facility connected to saving accounts but ICICI bank provides facility of money multiplier FDs then any customer can create linked FD through ICICI bank mobile app any time as per their own requirements by using money multiplier FDs option in mobile app.

How does Sweep in FD facility works in saving account?

Saving accounts having sweep in FD facility have privilege to keep surplus amount of savings in form of sweep fixed deposits.

Suppose customer open bank account with minimum balance of Rs.10000/-   and bank provide auto sweep FD facility beyond minimum balance then suppose if customer deposit Rs.50000/- in his/her account.

The moment Rs.50000/-  is credited in saving account, then all amount exceeding minimum balance i.e. Rs.40000/- get debited automatically from the saving account and same is transferred to fixed deposit. New fixed deposit number is generated with maturity date and applicable rate of interest depending upon period of FD.

This process is repeated every time when bank balance get exceeded beyond minimum balance in saving account and extra amount automatically get transferred to fixed deposits so that customer get higher interest on those sweep out fixed deposits as compared to lower rate of interest on normal saving account.

Saving account will show three positions like account balance, sweep FD balance and gross balance available in saving account at any point of time.

Suppose if any payment is to be done for example, there is loan EMI of Rs.25000/- setup to pay every month from your account and at that moment you have Rs.10000/- in saving account and Rs.40000/- in sweep FD balance then on debit of loan EMI of Rs.25000/- your saving account will go negative by Rs.15000/- (25000-10000) but on the same time Rs.25000/- will auto sweep in your saving account from FD balance to make it again at par with Rs.10000/- i.e. minimum balance in saving account.

So this way without bothering anyone or without any manual intervention, the system automatically do sweep in and sweep out of money from fixed deposits to saving account and vise versa.

Fixed deposits amount is broken for credit to saving account on the LIFO method (last in first out) so that customers don’t loose interest on oldest fixed deposits on frequent debit transactions in the saving account.

Benefits of having sweep FD facility in saving bank account: –

1. There is flexibility of keeping your hard-earned money in form of fixed deposits for short term rather than keeping idle money in normal saving account. Surplus amount automatically get converted to fixed deposits so you earn more interest on such money from the day one. This way you save your time and efforts.
   
   
2. You need not worry about any debit or payment from saving account as far as you maintain that much amount in saving + sweep FD balance. Upon any payment so much amount automatically sweep in from FD to saving account balance.
   
   
3. You can create multiple fixed deposits for multiple amounts which are linked directly to your saving bank account.
   
   
4. In this facility you are able to earn more interest on fixed deposits as compared to interest in normal saving account where banks hardly pay any interest to their customers.  
   
   
5. Sweep in FD facility, there is no penalty or charge on pre-matured withdrawal of amount from FD balance.

Frequently asked questions on sweep in FD saving account

Q 1: Can I get sweep FD facility in my existing account or need to open new bank account?

Ans: This depends on bank where you maintain your existing saving account, however sweep in FD facility can be availed any time by requesting to your bank branch.

Q 2: Whether interest rates of sweep FD differ from traditional fixed deposit?

Ans: No, fixed deposit interest rate slab is same for all type of FDs

Q3: Is there any daily limit to create fixed deposit in sweep in FD facility?

Ans: As such there is no fixed limit for making fixed deposits from saving account, although its depends on your bank that how they customize their system for you.

Q 4: What is tax treatment on interest earned on sweep in fixed deposits?

Ans: Tax treatment is same as that of bank interest income from normal fixed deposits. Banks do not deduct TDS to certain limit and if yearly interest exceeds beyond that limit then banks deduct TDS @10% from the FD interest.

Q 5: How can we keep track on sweep FD and saving account balance?

Ans: Mobile App of each bank has made it easy to access your saving account thru your mobile and view the daily balance lying in saving account as well as sweep FDs including transactions.

Q 6: Whether Sweep FD accounts are safe?

Ans: Yes, sweep FD and saving accounts are linked with each other and they are operated & controlled only by same bank where you maintain your account.

Q 7: Which is better sweep in FD or normal FD for getting higher return of interest?

Ans: If you can hold your money for long time let say for more than one year then normal/traditional FD is better while sweep in FD is good for short term period and if you are not sure about future money requirements then you can choose to keep funds in sweep FDs.

Q 8: Do banks charge penalty or any other charges on pre-mature withdrawal from sweep in FD balance?

Ans: This is the main benefit of sweep in FD facility that bank doesn’t charge any penalty or any other charges on account of pre-mature withdrawal from sweep in FD balance while in case of traditional fixed deposit, bank normally charge 1% penalty on pre-closure of FD and customer get lesser interest rate in such case.

Q 9: Which bank is best for sweep in FD saving account?

Ans: Private banks like Yes Bank, Kotak Bank, HDFC bank, IDFC First bank, IndusInd bank etc. do their campaigning to attract more and more customers. But this is your own decision to choose the right bank as per your convenience and trust. You can also choose any PSU bank like SBI etc. Every bank has their own pros and cons. So compare them and take the decision accordingly.

I hope the above article is useful for you. Please post your comments and share your thoughts on it.

Please also read other relevant articles:

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Regards,

CA. RK Dhiman

www.MoneyValue365.com

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