- Date : 16/01/2021
- Read: 4 mins
Here’s how you can earn more interest on the money in your bank savings account.
A popular way to save for the future is by depositing your money in a bank. This has been an age-old custom and allows you flexibility and liquidity, so you can withdraw your funds as you please. However, a major disadvantage of a savings account is the lack of opportunity for your money to grow. With a low rate of interest as compared to other investments, your saved money may not quite keep up with inflation.
The sweep-in sweep-out facility lets you earn a higher rate of interest on your savings. Here is all that you need to know about this feature.
Related: Understanding your savings account
What is the sweep-in sweep-out facility?
The sweep-in sweep-out facility is a feature you can opt for in any bank. When you select this option, you fix a minimum amount (or threshold amount) that you would like in your savings or current account. When your bank balance exceeds this amount, your bank automatically transfers the excess funds to a sweep-in deposit. This deposit can be anywhere between one and five years, and the interest depends on the term and amount. However, the interest earned is higher than on your savings account.
What is the criteria to have a sweep-in sweep-out facility?
While the criteria might differ for each bank, you will need to start by opening an FD of at least Rs 25,000 with them in order to qualify for the facility. You can also open a premium account with your bank with a balance ranging between Rs 25,000 and Rs 1,00,000 on a monthly or quarterly basis.
What are the benefits of opening a sweep-in sweep-out facility?
There are many advantages of opting for the sweep-in sweep-out facility at your bank:
- It offers a higher rate of interest: The facility offers you a higher rate of interest than your usual bank account, allowing you to create wealth in the long run.
Related: 5 Alternatives for better returns instead of a savings account
- It allows you to create a corpus: The facility can be used as a way to build a corpus to be used in times of emergency. This keeps your other investments and savings intact.
- Provides liquidity in an emergency: In case you are running low on funds in your regular savings account, funds will automatically be transferred based on the LIFO (Last In First Out) rule directly to your savings.
- It comes with no penalties: The option to withdraw your funds from the sweep-in sweep-out deposit is straightforward and hassle free. There are no penalties or fees involved in case you want to withdraw your money early as in the case of a fixed deposit.
What should you consider before selecting the sweep-in sweep-out facility?
Although a sweep-in sweep-out facility offers many benefits, there are some things to keep in mind before you go in for it:
- The rate of interest, term, amount etc. will differ for each bank. Compare these features against different banks to choose the best one for your financial needs.
- Even though it offers a higher rate of interest than a savings account, it is still lower than a fixed account. If you feel like you might not need the liquidity for a long period of time, it might be worth investing in a fixed deposit due to the higher rate of interest.
Related: Fixed deposit, savings account, or liquid funds? How to be financially prepared in a pandemic
If you have a low appetite for risk, the sweep-in sweep-out facility can be an ideal investment option. However, you should make an effort to find out what each bank offers so that you can make the most of your savings. Here’s how Digital Savings Account can come handy during pandemic.
A popular way to save for the future is by depositing your money in a bank. This has been an age-old custom and allows you flexibility and liquidity, so you can withdraw your funds as you please. However, a major disadvantage of a savings account is the lack of opportunity for your money to grow. With a low rate of interest as compared to other investments, your saved money may not quite keep up with inflation.
The sweep-in sweep-out facility lets you earn a higher rate of interest on your savings. Here is all that you need to know about this feature.
Related: Understanding your savings account
What is the sweep-in sweep-out facility?
The sweep-in sweep-out facility is a feature you can opt for in any bank. When you select this option, you fix a minimum amount (or threshold amount) that you would like in your savings or current account. When your bank balance exceeds this amount, your bank automatically transfers the excess funds to a sweep-in deposit. This deposit can be anywhere between one and five years, and the interest depends on the term and amount. However, the interest earned is higher than on your savings account.
What is the criteria to have a sweep-in sweep-out facility?
While the criteria might differ for each bank, you will need to start by opening an FD of at least Rs 25,000 with them in order to qualify for the facility. You can also open a premium account with your bank with a balance ranging between Rs 25,000 and Rs 1,00,000 on a monthly or quarterly basis.
What are the benefits of opening a sweep-in sweep-out facility?
There are many advantages of opting for the sweep-in sweep-out facility at your bank:
- It offers a higher rate of interest: The facility offers you a higher rate of interest than your usual bank account, allowing you to create wealth in the long run.
Related: 5 Alternatives for better returns instead of a savings account
- It allows you to create a corpus: The facility can be used as a way to build a corpus to be used in times of emergency. This keeps your other investments and savings intact.
- Provides liquidity in an emergency: In case you are running low on funds in your regular savings account, funds will automatically be transferred based on the LIFO (Last In First Out) rule directly to your savings.
- It comes with no penalties: The option to withdraw your funds from the sweep-in sweep-out deposit is straightforward and hassle free. There are no penalties or fees involved in case you want to withdraw your money early as in the case of a fixed deposit.
What should you consider before selecting the sweep-in sweep-out facility?
Although a sweep-in sweep-out facility offers many benefits, there are some things to keep in mind before you go in for it:
- The rate of interest, term, amount etc. will differ for each bank. Compare these features against different banks to choose the best one for your financial needs.
- Even though it offers a higher rate of interest than a savings account, it is still lower than a fixed account. If you feel like you might not need the liquidity for a long period of time, it might be worth investing in a fixed deposit due to the higher rate of interest.
Related: Fixed deposit, savings account, or liquid funds? How to be financially prepared in a pandemic
If you have a low appetite for risk, the sweep-in sweep-out facility can be an ideal investment option. However, you should make an effort to find out what each bank offers so that you can make the most of your savings. Here’s how Digital Savings Account can come handy during pandemic.
