Auto sweep facility in savings account

Today we would discuss on what is auto sweep facility in savings account and how this would provide more interest like FD in normal savings SB account.

We all have savings account in Indian banks, but the interest we get in those accounts are very less (about 4%). On the other hand, fixed deposit accounts give a higher rate of interest (about 7%). But in FD your money’s liquidity is hampered, which means you cannot use that money elsewhere unless your FD in matured, if broken earlier you would lose the interest as you have to break the total FD amount. To solve this problem, banks have came up with a scheme called auto sweep facility.

Almost every bank has this auto sweep facility, but they are named differently in every bank. They names are somewhat like this:

• Axis bank: Encash 24 account
• SBI: Multi Option Deposit account
• Allahabad bank: Savi Fix account
• Bank of India: BOI savings
• Bank of Baroda: Super savings account
• ICICI bank: Money multiplier account
• Kotak bank: Sweep In savings account
• Union Bank: Union Flexi savings deposit
• HDFC bank: Sweep In savings account
• IDBI bank: Sweep In savings account
• Oriental Bank of Commerce: Flexi Fixed Deposite scheme
• Corporation bank: Money Flex
• United Bank of India: United Bonanza savings scheme

How does auto sweep facility work?

You would require to define a threshold amount while applying for the scheme. There is a minimum value of the threshold value which you can define, but the value differs from bank to bank. In some banks its Rs.25,000 and some banks its Rs.50,000 or it may be some other values as well.

Also the tenure of the FD that would be created could be selected by the customer.

The amount of money present above the threshold value you set would get automatically deposited in a FD account. This occurs either in a multiple of 5000 or 10000.

And when you want to withdraw money and you savings account balance falls below the minimum balance, FD would be broken and would be swept out to savings account.

For example:

SBI has minimum threshold value as 25000.

You may activate MOD (multi option deposit) in SBI with threshold value as 25000 or above.

If you have set it as 25,000 and you have account balance of 1,00,000, then a FD account would be created for you and the extra 75,000 would be deposited into it. Now you will get 7% interest on that 75,000 rupees.

Suppose you have selected the tenure to be 1 year. Then the FD would be created for 1 year and after 1 year, the interest would be added to the FD account and the FD would be renewed for another 1 year. This continues unless broken.

And you would be getting normal 4% interest on the 25000 rupees.

Now if you want to withdraw 20000 from your savings account, it would be debited from your normal savings account and not the FD.

If you want to withdraw 30000 from your savings account, as your normal account has only 25000, your FD would be broken and 5000 would be added back to your normal savings account and you would be able to withdraw the money without any problem.

Now you have total 70,000 balance. Out of this, 25,000 would remain in your normal savings account and the rest of the 45,000 would be again deposited back to a new FD account.

 

How to apply for auto sweep facility?

Some of the banks allows you to apply online though internet banking for this scheme, like SBI. But some other banks does not have this facility online, you need to go to any branch and physically submit the form and documents (PAN card copy normally is needed.)

Taxation

As this is a FD and as FD interest are taxable, you would get TDS deducted from the interest that is credited to you FD accounts for the sweep facility. But if your income is not taxable, then you can provide a 15G or 15H to get rid of it.

Also read: How to prevent TDS deduction from FD interest by submitting form 15G or 15H