Picture this. Mr. Nikhil, a data analyst, opens a savings account to manage his daily expenses and future savings. After spending on necessary expenses, a high idle amount remains in his savings account every month, and the nominal interest rates hardly make any difference in his earnings. Surely, he wants to earn higher returns on his savings, but he also doesn’t want to take on investment risks or lose accessibility to his funds.
In this situation, the auto-sweep facility in his savings account can be a valuable solution. Mr. Nikhil is considering the auto-sweep facility because he wants to earn higher returns on his savings without taking on investment risks or losing accessibility to his funds. By opting for this feature, those idle amounts can be automatically transferred to a Fixed Deposit (FD) that earns higher interest rates while still maintaining full-time liquidity.
An example to understand how the auto sweep facility in a savings account works
Suppose Mr. Nikhil has Rs. 90,000 in his ActivMoney savings account, and the threshold limit is Rs. 25,000. This implies that Rs. 65,000 is his idle fund that is earning nominal interest. However, with the auto-sweep facility, the bank can transfer idle funds to an FD automatically.
Once the idle fund is transferred, it starts earning interest at the applicable FD rate, which is higher than the savings account interest rate. The typical FD tenure is 180 days, but it may vary depending on the bank he opens an account with.
4 reasons why you should also opt for an auto sweep facility
- Earn higher interest rates on your idle funds
While FDs offer better interest rates than savings accounts, they might limit liquidity. FDs created through an auto-sweep facility help you leverage higher interest rates while still enjoying 24/7 access to your funds. By simply having an idle balance in your account, you can earn returns that beat inflation rates, which ensures that your money grows at a faster pace.
- No hassle management of funds
Auto sweep facility is ideal for busy people who don’t have the time to manage their funds manually. The process is automated, and you don’t have to make additional efforts, such as keeping track of how much money you have in the account or manually transferring it to maximise interest rates. Simply set a threshold limit, and once the balance reaches above that limit, let the auto-sweep facility manage your savings account and FD.
- Easy liquidation of funds
In an emergency, you may need money quickly, or sometimes your savings account may have insufficient funds. The auto-sweep facility in your savings account lets you liquidate your funds quickly before maturity without any penalty. This is known as a reverse sweep. However, the transferred money will earn saving account interest rates and not FD-like interest rates. Hence, If you have enabled auto sweep in savings accounts, it is wise to avoid frequent transactions, as this could lead to the reversal of the sweep and the loss of interest earned on the FD.
- Avoid the temptation to spend
. The auto-sweep facility can help people avoid the temptation to spend by automatically transferring excess funds to an FD, where they are less likely to be accessed. You can be assured that your money is working hard and still easily accessible when you need it.
Earn more with auto sweep | Make your savings work harder
Auto-sweep facility is an excellent option for individuals who want their idle funds to earn FD-like interest. It provides convenience, flexibility, and higher returns as compared to savings accounts. Your money stays actively invested rather than sitting idle.
Contact your bank today to explore the auto-sweep feature as an existing customer or open a savings account that comes with this facility. Enjoy the best of both worlds- liquidity and higher interest.