Home » News » Personal Finance»Fixed Income - Bank Deposits
Apr 09, 2013, 12.27 PM | Source: Personalfn.com

How to make most of your money lying in Savings account

All of us build our contingency reserves and keep it in our locker or savings bank. Along with maintaining liquidity, it is also possible to earn a higher rate of interest on our deposits in savings account. Here are the 2 options that can help you earn a higher rate of interest on your money lying idle in your savings account.

All of us build our contingency reserves and keep it in our locker or savings bank account for any emergency that may arise in the future. By keeping this money in savings bank account we are able to maintain the required liquidity of funds; but the interest @ 4% p.a. (if your bank is not offering 6% - 7% interest on savings account) that we earn on the money lying in savings bank account may not be sufficient.

It would be better if we are able to maintain the liquidity and at the same time earn a higher rate of interest on our deposits in savings bank account.
If your bank is not offering high interest on savings account, here are the 2 options that can help you earn a higher rate of interest on your money lying idle in your savings account:

1. Sweep in Facility
2. Flexi Deposit

Sweep in Facility

In order to enjoy the sweep in facility you need to have a savings bank account. In your savings bank account you can set a threshold limit, above which any amount deposited in your savings bank account will automatically move to a fixed deposit and earn a higher rate of interest prevailing on the fixed deposits for the tenure that it remains with the bank. In case your savings account balance is low enough to clear your issued cheque then also you need not need to worry about it. Any amount of deficit in your savings bank account will be taken care by your fixed deposits.

For e.g. you have set a threshold limit of Rs. 10,000 in your savings bank account and have deposited Rs. 50,000 in the account. Now Rs. 10,000 will remain in your savings bank account and Rs. 40,000 will automatically convert into fixed deposit which will earn you a higher rate of interest of about 8-9% p.a. If you issue Rs. 15,000 cheque towards your credit card payment and your savings bank account has just Rs. 10,000 in the account then the deficit of Rs. 5,000 will be recovered from your fixed deposit.

In the above example you will earn savings bank account interest of 4% on Rs. 10,000 and 8-9% returns on Rs. 40,000 so you have the benefit of enjoying an additional rate of interest of about 4-5% on Rs. 40,000 and at the same time you are also able to maintain the liquidity for any emergency that may arise. If you do not opt for a deposit through sweep in facility thinking it is illiquid or you are ignorant about it, then you would lose out on opportunity to earn an additional 4-5% rate of interest that you could easily earn on your deposit of Rs. 40,000 in this case.

Flexi Deposit

In order to enjoy flexi deposit facility you need to have a savings bank account and also book a fixed deposit with the bank. Your fixed deposit will then be linked to your savings bank account and in case there is insufficient fund to clear your issued cheque; the deficit amount will automatically get transferred from your fixed deposit to your savings bank account.

For e.g. you have Rs. 10,000 in your savings bank account and you also have booked a fixed deposit with the bank of Rs. 1 lakh. Now this Rs. 1 lakh fixed deposit will be linked to your savings bank account and in case of an insufficient balance in your savings bank account, the fund from this fixed deposit will be used. Suppose you issue a cheque of Rs. 25,000 towards payment of credit card bill and your savings bank account has just Rs. 10,000 balance then the deficit of additional Rs. 15,000 will be taken from your linked fixed deposit and your credit card bill will be paid off.

In the above example, you will earn savings bank account interest of 4% on Rs. 10,000 and 8-9% returns on Rs. 1,00,000 fixed deposit so you have the benefit of enjoying an additional 4-5% on Rs. 1,00,000 and at the same time you can also maintain the liquidity for any emergency that may arise. If you would not have opted for flexi deposit then the liquidity in your saving account will be maintained, but you would lose out on the additional 4-5% rate of interest that you could have earned on your fixed deposit of Rs. 1,00,000.

What is the basic difference between Sweep in Facility & Flexi Deposit?

In a sweep in facility, any amount above a threshold limit automatically gets converted into fixed deposit and you do not need to book a new fixed deposit with your bank; while in Flexi Deposit you need to manually book a fixed deposit with your bank, which will then be linked to your savings bank account.

To Conclude

Sweep in facility is more convenient way to park your contingency funds as it is automatic while you can go for flexi deposit as well but you need to manually book fixed deposit every time you have some surplus cash and then link it with your savings bank account. Also remember some banks charge penalty of about 1% of interest in case you break your flexi deposit before maturity, but considering the high rate of interest of 8-9% on flexi deposit, the return after 1% penalty charged by bank is still higher than your savings bank account rate of 4%.

PersonalFN is a Mumbai based Financial Planning and Mutual Fund Research Firm.

ADS BY GOOGLE

Ask the Experts

Get your Personal Finance queries answered

  • Q

    Interest rates are going to go down. And all my fixed deposits will be maturing next year. I will have to renew my fixed deposits next year at lower rate of interest. What is the way out?

    A

    Interest rates keep fluctuating due to various micro- and macro- economic factors. There is never an ideal rate of interest. In a high inter...

  • Q

    If I put Rs 2 lakh in PPF, how much tax rebate I will get?

    A

    As per the existing guidelines and rules a person cannot deposit more than 1.5 lacs in one PPF account. However you can deposit money in the...

  • Q

    I want to buy online term life insuance plan. Which is the best one? Should I go for single premium or regular premium policy?

    A

    Single premium term insurance policies don?t make much sense. Why pay such a large amount at one go when you have the option of paying in sm...

  • Q

    I want to invest some money with at least ten years view. I dont want share market risk. Can I invest in NSC? Is there any other investment option?

    A

    NSC or National Savings Certificate is a safe investment scheme offered by the Central Government. It is an ideal option for investors with ...

  • Q

    Is it a good idea to invest in asset allocation funds? if yes, please suggest some good fund to invest money. I am 35 years old and can invest Rs 10000 per month.

    A

    Asset Allocation Funds are for those investors who want to take an exposure into different asset classes but do not wish to create their own...

  • Q

    My CA says that I have to pay tax on interest accrued on my FD of Rs 20 lakh. I have submitted form 15H in all banks. Is it necessary to pay tax in this case?

    A

    In case of interest on fixed deposits which is taxable under the head ?Income from other Sources? a taxpayer has two choices. Either you can...

  • Q

    Please suggest a good investment option of land in South India. I want to buy a land parcel of around 2 acres.

    A

    If you take a look at the South Indian real estate market, Bangalore has emerged as a clear winner. Due to the strong presence of IT/ITeS an...

  • Q

    I want to invest Rs 20000 per month. I have identified Reliance Small Cap Fund and DSPBR Micro cap fund for investment. I can hold to investments for two years. Is it a good idea to invest in these schemes? How much returns I will be getting?

    A

    If you are an aggressive investor, you can consider investing in either of the 2 funds.DSPBR Micro Cap My suggestion is that if you are inve...

  • Q

    I want to save my money for retirment Please suggest a good insurance policy

    A

    For retirement it is advisable to use multiple investment instruments and not just life insurance policies. If you have 15 years or so for r...

  • Q

    IS IT a Good time to invest in GOLD ?

    A

    Currently the outlook for gold is bearish/negative. However if you are planning for a long-term investment in gold it is ideal to invest the...

  • Q

    I have retired from my job in November. I have got Rs 48 lakh from my employers, by way of epf, gratuity and other benefits. Should i invest in senior citizen scheme of LIC? How about pension plans from LIC?

    A

    1. You can invest Post office Senior Citizen Scheme. 2. You also should invest lumpsome in MIP in post office and get monthly interest. 3. K...

  • Q

    I want to save Rs 1 crore for my retirement when i turn 60. Now I am 42 years old and have fixed deposits worth Rs 18 lakh.What should I do to reach Rs 1 cr mark?

    A

    start investing a minimum 5000 per month in mutual fund and increase 10% to 20% every year....

  • Q

    I want to save on my utility bills and fuel expenses.Please suggest a good credit card for me.

    A

    Yes, you will be able to save on Utility bills and fuel expenses through the cash back schemes offered by some of the credit card companies....

  • Q

    Suggest couple of equity mutual funds for me. I am keen to invest Rs 25000 per month for next couple of years. I can remain invested for at least five years?

    A

    Asset Allocation Funds are for those investors who want to take an exposure into different asset classes but do not wish to create their own...

  • Q

    I am a senior citizen.I received interest of Rs .1,70,000/- on FD.I have duly filled 15G form.I have NO other source of income.Have I to pay Income tax on this interest or can it be excempted?

    A

    Sir, please note if you are less than 80 years but more than 60 years of age, your total income upto Rs 3,00,000 is exempt from tax, you are...

  • Q

    Please suggest a good money back policy for me. I am 27 years old and want to accumulate Rs 10lakh over 10 years.

    A

    If you are a fan of traditional money back policies, go in for the LIC New Money Back Policy of 20 or 25 years. I would suggest you go in fo...

  • Q

    I want to buy a life insurance for my brother Please suggest a good policy. He is 19 years old. he should get Rs 5 lakh when he turns 25 years.

    A

    Best to go in for a ULIP in case he is looking to grow the money also. Go in for a ULIP like HDFC Click 2 Invest which is very low on charge...

  • Q

    In 2013, I bought an Endowment policy from LIC. Premium for that is around 35K per year. Now i understand, this was a big mistake and i want to go for a term insurance policy. I have already paid two premiums in 2013 and 2014 and I want to make this policy paid-up. Can i pay one more premium this year and make that endowment policy paid-up ? Or is there any better alternative ? Please suggest.

    A

    Yes, you can convert to a paid-up policy after 3 years premiums have been paid. I would recommend that you surrender the plan and take back ...

  • Q

    Is zero depreciation cover a good option under auto insurance? I have plans to buy honda city in January

    A

    Zero depreciation is a good option to along with the standard car insurance plan. By paying a slightly increased premium you can ensure that...

  • Q

    I am 20 years old,I am getting 17+ % or returns from share in my portfolio consistently for the last 6 months.should i think about a career in stockbroking?

    A

    Its nice to note that your portfolio has been gaining such high returns, however it might be too early to take a call and make stockbroking ...

Explore Moneycontrol

Copyright © e-Eighteen.com Ltd. All rights reserved. Reproduction of news articles, photos, videos or any other content in whole or in part in any form or medium without express written permission of moneycontrol.com is prohibited.