Automation has transformed the way we interact with banks, turning everyday tasks into effortless experiences. Consider the ease of quickly transferring money, paying bills or setting up recurring transactions with a few taps. They save time and help you make the most of your finances without constant monitoring.
One such feature that takes automation to the next level is the auto sweep facility. In this guide, we will explore its features and how it can help you grow funds in your bank account.
What is meant by auto sweep facility?
Auto sweep facility is a feature in savings accounts that helps maximise your earnings by automatically transferring surplus funds to a fixed deposit. So, when the balance exceeds a set limit, this excess amount ‘sweeps’ into a linked fixed deposit, where it earns higher interest.
For example, if you set a threshold of ₹40,000 in your savings account and your balance reaches ₹60,000, the extra ₹20,000 will automatically transfer to a fixed deposit. This way, your funds grow without you having to manage them constantly. It’s like putting your money to work, even when you’re not thinking about it.
Pros and cons of auto sweep facility
Advantages of auto sweep facility
1. Earn higher interest as excess savings move into a fixed deposit, often yielding better returns than a regular savings account.
2. Access funds anytime without penalties, offering flexibility whenever needed.
3. Automates fund management, saving time by moving funds without manual effort.
4. Reduces idle funds by sweeping surplus into high-interest deposits, which can optimise your savings.
5. Zero penalties for early withdrawals from the FD portion, maintaining liquidity without fees.
Disadvantages of auto sweep facility
1. Frequent withdrawals can lead to lower overall interest, as early reversals might not earn the same rate.
2. Minimum balance requirements can be inconvenient, particularly if you’re unable to consistently maintain the threshold.
3. Managing multiple transactions between savings and fixed deposit accounts can feel complex, especially for those new to financial products.
4. Taxation on FD interest can lower net returns, especially for higher-income individuals who fall into higher tax brackets.
5. Different banks have varied policies and fees, which can make comparing options challenging.
Is a minimum balance required to avail auto sweep facility?
Yes, auto sweep facility usually requires maintaining a minimum balance, even when opening a zero balance account online. This ensures that when your account balance exceeds a certain threshold, the excess can automatically be transferred to a fixed deposit to earn higher interest. It’s essential to check with your bank and stay aware of this minimum threshold to make the most of the auto sweep benefits.
Should you consider availing the auto sweep facility of your account?
The auto sweep facility can be a smart choice if you want to earn higher interest on surplus funds while keeping them accessible. It’s ideal for those who prefer the convenience of automatic fund transfers from a savings account to a fixed deposit (FD) without sacrificing liquidity. This feature is beneficial if you tend to maintain a substantial balance in your account, as it helps your idle money work harder by earning FD-like interest rates while still allowing you to access it instantly when needed.
Things to consider before opting for auto sweep facility
You’ll need to maintain a minimum balance and frequent withdrawals can sometimes result in lower overall returns, as breaking an FD early may reduce the interest earned. Moreover, the FD interest is taxable, impacting your net gains depending on your tax bracket.
Thus, if you’re looking for flexibility and higher returns without actively managing multiple accounts, auto sweep facility can be a good fit. Just make sure to understand the specific terms from your bank to align them with your financial needs.
Conclusion
You can set up the auto sweep facility online or at your bank branch. Simply submit a request form, set your desired threshold limit and choose the tenure for your fixed deposit. Many banks offer this option through mobile apps as well, making it easy and convenient. Once activated, your surplus funds will automatically transfer into a fixed deposit, earning higher interest while still being accessible when you need them.
