For many, managing finances refers to opening an account online, depositing funds, and using it for routine transactions. When it comes to growing and saving money, it is commonly assumed that it requires more conscious effort. This is where the auto sweep facility can be used to make saving money a hassle-free process. In this article we will cover what an auto-sweep facility is, how it functions and steps to enable it.
What is an auto sweep-in facility?
The auto-sweep facility is a feature using which one can transfer a specified amount of funds from their savings account to a fixed deposit (FD) or sweep-in FD. It’s a seamless way to take advantage of financial instruments which offer higher interest rates on deposits, helping you achieve financial goals or build savings.
How does the auto sweep-in facility work?
An auto-sweep facility works when the account holder sets an instruction on their bank account to sweep funds that exceed a certain threshold to a high-interest investment account. This function is triggered under the following conditions:
- Threshold Trigger: When the balance in your savings account has exceeded the specified threshold limit set by the account holder or the bank, the excess amount is swept into an FD. This is calculated at the end-of-day balance in your savings account.
- Minimum Transfer Units: Also referred to as “transfer in multiples of” the bank will sweep in amounts in multiples of a certain amount. For example, if the rule is ‘sweep in multiples of INR 5,000’ and your surplus is INR 13,000, the bank may only sweep INR 10,000, not the exact INR 13,000.
Benefits of an Auto Sweep-In Facility
Using an auto sweep account can help you meet your financial goals. Some of the key benefits this facility offers are:
- Increased Interest: The auto-sweep facility lets you access higher interest earnings by transferring your idle funds to linked – FDs.
- Liquidity: If your available balance falls below a set threshold limit, it triggers a reverse-sweep where the amount is automatically transferred from the linked fixed deposit to the savings account to cover the deficit. This feature maintains liquidity and helps you avoid minimum balance charges.
- No or Minimal Penalty on Withdrawals: Auto – sweep FDs allow partial withdrawals, usually with a penalty of about 0.5-1% on the interest rate. Some banks don’t charge any foreclosure or penalty charges even if the FD is closed early.
- Wealth Creation and Emergency Corpus: Many account holders use the auto-sweep facility to build a separate corpus which you can dip into during emergencies. This will ensure you don’t have to apply for a loan to deal with financial gaps.
How to Avail the Auto Sweep-In facility for Your Savings Account
You can avail the auto sweep account facility using online and offline methods:
- Online: You can avail sweep-in facility online through your bank. Here is a step-by-step guide:
Step 1: Log in to the net banking portal of your preferred bank.
Step 2: Click the ‘sweep – in FD’ option under the Fixed Deposit tab.
Step 3: Link the savings account and fixed deposit by entering details.
Step 4: Click on the ‘Continue’ tab to activate the sweep-in facility in your fixed deposit account.
- Offline: You can also avail the auto-sweep facility, by visiting your bank’s branch.
Step 1: When visiting your bank’s branch, ask the representative to link your FD with your savings/current account.
Step 2: Provide all the required information such as your savings or current account number, FD account number and your particulars.
Step 3: Select a suitable term for your sweep-in FD. The bank representative will activate the sweep-in facility in your fixed deposit account.
Things to keep in mind when opting for the Auto Sweep Facility
Now that we have covered sweep transfer meaning, there are some important things to consider before you choose to opt for the auto-sweep facility:
- Interest Rates: Check if a savings account interest rate is offering more than your current one, or if you are planning to link FD then consider the tenure and interest rate best suited to your goals.
- Tax Considerations: The interest earnings on your auto-sweep FDs are subject to taxation under the Income Tax Act. The tax rate varies according to your income slab, and individuals are required to report interest from both your savings account and auto sweep FDs in your tax return.
- Liquidity: Ensure that the bank offers the option to automatically sweep back into your savings account to cover transactions if the balance is lower than the set threshold.
Conclusion
The auto-sweep facility is a smart financial tool, which lets you save and grow your money passively. It is important to set the right instructions for the debit sweep to ensure you are able to meet your daily expenses and build your wealth. You should also consider taxation and applicable interest rates before availing this facility. Having a savings bank account which offers digital banking services can make it easier to enable and track your investments.