Sweep-in fixed deposits, or auto-sweep FDs, are an intelligent way of earning a greater interest on your idle funds while still keeping them within reach. In such a setup, any excess above a mutually agreed level in your savings account is automatically transferred—or "swept"—to a fixed deposit. This allows you to earn FD-level interest rates without committing all your money to it, and hence enjoy the best of both worlds: liquidity as well as better returns.
Why they are popular with small investors
For a person who typically has a sizeable balance in their savings account, sweep-in FDs are a lifesaver. Instead of earning low interest on idle funds, your funds earn their keep in an FD, yet remain accessible when you need it. It's especially attractive to people who want to earn the most without going through the hassle of transferring amounts manually or breaking FDs prematurely.
How are returns different from regular FDs
Interest rate on sweep-in FDs is usually the same as normal fixed deposits of similar term, which is usually higher than the interest on normal savings accounts. The advantage is also complemented by the fact that the sweep is automatic, and your excess funds are always earning more. In traditional FDs, your money may be tied up for several months or years, but sweep-in FDs adapt dynamically based on your balance, and you are not deprived of liquidity.
Things to be considered prior to a switch
While sweep-in FDs have both liquidity and greater returns, they might not be suitable for all. Banks can have a minimum balance or place restrictions on sweeps in a month. It also makes sense to know how the interest is calculated and credited so that it actually serves the purpose of your financial objectives.
Decision making
If you usually hold excess balance in your savings account, a sweep-in FD would do the trick. It offers the security of traditional fixed deposits along with the flexibility of a savings account. But if your savings fluctuate constantly over time or require all your cash at hand right away without any restriction, it is best to ask for the bank's policy before converting the account.
FAQs
Q: Are sweep-in FDs as safe as traditional FDs?
Yes, they are backed by the same bank and are equally safe as traditional fixed deposits.
Q: Am I able to withdraw money at any time from a sweep-in FD?
Yes, amounts exceeding the cut-off remain in your savings account, and you can withdraw them instantly without disrupting the FD.
Q: Are sweep-in FDs more interest-sufficient than savings accounts?
Yes. Idle funds swept into FDs receive more interest than average savings account balances.
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