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What Is A Fixed Deposit Sweep-In Facility & How Does It Work?

mahindra-finance-author

by Mahindra Finance

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May 13, 2024

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5 mins read

If you're looking to grow your savings while still having access to funds in case of an emergency, then a fixed deposit (FD) sweep-in facility could be the solution for you. While traditional fixed deposits offer higher interest rates, they lack the flexibility and liquidity of a regular savings account. This is where a sweep-in FD comes in handy.

In this article, we will delve into what exactly a fixed deposit sweep-in facility is, how it works, and the benefits it offers. We'll also explore FD rates and provide practical guidance on how to make the most of this financial tool.

Understanding fixed deposit sweep-in facility

What is an auto sweep facility in FD? With a fixed deposit sweep-in facility, investors can automatically transfer excess funds from their savings account to an FD account. This allows them to earn higher interest rates on their savings while retaining access to their funds when needed.

To set up a sweep-in FD, you need to link your savings account with your FD account. Once linked, any surplus funds in your savings account beyond a certain threshold will be automatically transferred to the linked FD account daily through the sweep-in facility.

Components of fixed deposit sweep-in

  • Period of Investment: The tenure of a sweep-in FD can range from one to five years, depending on the specific bank.
  • Bank Account Linking: Your current or savings account should be linked to the sweep-in FD account. Additionally, both accounts should be held in the same bank.
  • Minimum Investment: Banks typically transfer money from savings accounts to sweep-in FD accounts in multiples of thousands of rupees.
  • Sweep-in FD Interest Rates: The interest rates for a sweep-in FD are similar to those offered on regular FDs and depend on the tenure of the investment.
  • Withdrawals: You can withdraw excess funds from the fixed deposit through the sweep-in facility without breaking the entire FD. Most banks do not charge any fees or penalties for these withdrawals.

How does a fixed deposit sweep-in work?

Let's take a closer look at how a fixed deposit sweep-in works with an example. Suppose you have a savings account balance of ₹1,50,000 and you have set a threshold limit of ₹50,000 in your savings account. Additionally, you have linked this account to an FD with an interest rate of 7% for one year.

Each day, when your savings account balance exceeds the threshold limit, let's say by ₹1,00,000 on day 1, that excess amount will be automatically transferred to your linked FD. As a result, your new savings account balance will be ₹50,000, while your FD balance will be ₹1,00,000.

Over time, as you accumulate more funds in your savings account and cross the threshold limit again, those excess funds will also be swept into your FD account. This process continues until the maturity date of the sweep-in FD.

Benefits of fixed deposit sweep-in

There are several benefits of fixed deposit sweep-in facility

  • Flexibility for Business Owners
  • Retaining Interest in Your Fixed Deposit 
  • Linking Multiple Fixed Deposits
  • No Additional Charges or Penalties 

Higher Interest FD rates The interest earned on a sweep-in FD is typically higher than that of a regular savings account. This means you can maximise your returns while still having easy access to your money when required.

Difference between a sweep-in and flexi deposit

While both sweep-in FDs and flexi deposits offer high interest rates and liquidity, they differ in their functionality.

A sweep-in feature is an add-on to a traditional fixed deposit, allowing automatic transfers of excess funds from a linked savings account. On the other hand, a Flexi deposit is an independent deposit system wherein you manually deposit funds into your fixed deposit account and have the flexibility to withdraw money at any time.

In a Flexi deposit arrangement, any surplus funds in your savings or current account are automatically transferred to the fixed deposit when it reaches a certain threshold limit. There are no fees or penalties for withdrawing from the sweep-in account, and only the interest rate on the withdrawn amount is lost.

Conclusion

Understanding what an auto sweep facility and how fixed deposit sweep-in facilities work can help you make informed financial decisions and maximise your ROI. By linking your savings account to an FD, you can benefit from higher FD interest rates while retaining the flexibility of accessing your funds. Mahindra Finance offers a range of FD options that can assist you in achieving your financial goals. Take advantage of the fixed deposit sweep-in facility and make your money work harder for you with Mahindra Finance.

FAQs

Q1. What is the minimum amount required to open a sweep-in FD account?

The minimum investment required for a sweep-in FD account varies from bank to bank. 

Q2. Can I withdraw the entire FD amount through the sweep-in facility?

No, you can only withdraw the excess amount that has been swept into your savings account.

Q3. What happens if I don't have sufficient funds in my savings account to meet the threshold limit?

If your savings account balance falls below the threshold limit, there will be no transfer of funds to the sweep-in FD account.

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