Features & Benefits of Sweep-In/Sweep Out Fixed Deposits

Posted on Monday, May 27th, 2024 | By Neha Jain

Banks and financial institutions keep innovating their products as per the changing needs of their customers. The concept of sweep-in fixed deposit feature is also a result of innovation, considering the growing need for a savings product that can offer higher returns with easy access to money. This article aims to provide a comprehensive overview of the sweep-in fixed deposit feature – how it work, its benefits, and the crucial points to note before you invest.  

What is a Sweep-in/Sweep-Out Fixed Deposit?

An auto sweep facility is an innovative savings product that most banks offer. It is a combination of a fixed deposit and savings account. The mechanism of such accounts is quite simple.

For example, suppose you set the threshold limit for your savings account at ₹50,000. If your account balance increases to ₹1,00,000, the excess ₹50,000 is automatically transferred to a fixed deposit through the Sweep Out facility. This amount then earns interest at applicable FD rates. The FD tenure and interest rate may vary from bank to bank.

Now, assume your savings account balance is ₹25,000 and a cheque of ₹40,000 is presented for clearance. Since there is a shortfall of ₹15,000 (₹40,000 − ₹25,000), the required amount is automatically transferred from the linked fixed deposit to your savings account through the Sweep In facility. This ensures that the cheque is cleared without requiring any manual action from you.

Also Read: Top 5 reasons to invest in a Fixed Deposit 

Sweep-in FD vs Regular Fixed Deposit vs Savings Account

What are the Key Features & Benefits of a Auto Sweep Facility? 

1. Higher Returns: You can book a sweep-in fixed deposit from your savings or current account. With this, excess money above the threshold limit specified is moved to a fixed deposit account to earn the interest higher than the savings account.  

2. Maximum Liquidity: If you run short of funds in your savings or current account to meet your needs immediately, you can liquidate funds from a sweep-in fixed deposit. 

3. Automatic Funds Management: Sweep-in FD puts your idle money to earn higher interest by automatically transferring the balance above the threshold to auto-sweep FD. Similarly, it automatically transfers from a fixed deposit to your savings account if you run short of balance.  

4. Auto-renewal: Sweep-in FD also has an auto-renewal feature, which rebooks the fixed deposit on its maturity. 

5. Flexibility: Sweep-in fixed deposit offers flexibility to choose the threshold limit to book the FD. It also provides an option to request a premature withdrawal (may include penalties and charges depending on the bank’s policy) during the tenure, along with an auto sweep facility. You can choose the tenure when opting for a sweep-in facility. Auto-sweep FD interest rate may also vary accordingly.  

Also Read: Savings Account & Auto-Sweep Facility: How Does it Work?

Important points to keep in mind 

The following are some of the crucial points to keep in mind while opting for a sweep-in fixed deposit facility: 

1. Know the minimum and maximum limit for the fixed deposit that can provide a sweep-in facility as set by the bank. 

2. It is important to select the right tenure to leverage the higher interest rate. Compare the auto sweep FD interest rate with other savings or investment options. 

3. Be aware of charges and penalties applicable for the premature withdrawal of sweep-in FD. 

4. Understand the applicability sweep-in threshold limit and sweep-out frequency to make an informed decision. 

5. Sweep-in fixed deposits have the same tax implications as fixed deposits. Hence, keep the tax implication in mind while opting for the facility.  

Conclusion

In conclusion, sweep-in fixed deposits are attractive savings products that offer the best of both products – savings account and fixed deposit. Understanding the sweep-in fixed deposit mechanism can help you streamline your savings management process. You can invest your idle money to maximise savings while enjoying maximum liquidity.  

FAQs

• Is there a penalty on premature withdrawal from a sweep-in fixed deposit?

It depends on the bank. IndusInd Bank has zero premature withdrawal charges for fixed deposits.

• Is there a minimum and maximum limit for a sweep-in fixed deposit?

The minimum and maximum limit for a sweep-in fixed deposit differ from one bank to another, so reviewing the product-specific terms is recommended. Typically, the minimum requirement typically includes a threshold balance that must be maintained in the savings account before excess funds are transferred to the FD.

• Does a sweep-in fixed deposit offer a nomination facility like a regular FD?

Yes, a sweep-in fixed deposit has a similar nomination facility to a regular fixed deposit.