Sweep in Facility vs. Flexi Deposit, Which is better?   Mar 19, 2013


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.

Conclusion

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%.



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Comments
kunal_dani@rediffmail.com
Dec 11, 2013

If I have Rs 10 lakhs and I need the funds partly from time to time over the period of next 1 year then which of the following option is better?

1. Make FD at 9.5% for 1 year and take OD facility for 90% of the a FD amount. The bank will charge 1% extra i.e 10.5% interest on the withdrawal amount

OR

2. Take a sweep in facility.
sharath.panjala@gmail.com
Feb 01, 2016

Hi,

My EMI for personal loan get deducted automatically. In case of insufficiant funds does if I use the sweepin facility, does the funds be adjusted as per loan EMI or Credit card EMIs.
kuldeepsinghdhn55@gmail.com
Jul 11, 2013

Hi sir

My question is if i am having the amount of 100000 Rs. and I want to fix it in the bank for 5 years.  Now i want interest every month and my amount should be double after the fix period, is it possible or not.
mauryak14satish@gmail.com
Jul 21, 2016

One thing is not clear yet, there is minimum amount limit in saving account.
Suppose, there is 10,000 is minimum amount limit, and I have 15,000 in my account and I withdraw 20,000 from my account.
In that case what will happen?
20,000 will be credited to my Saving account form MOD or Bank will charge penalty due to under balance in my saving account.
boisewatershed@cityofboise.org
Jun 22, 2013

I think Also local banks now are on line and this helps being able to track your account. Check out instert rates that you earn on the account.You also need to think about places to INVEST your money:You don't have to do this but please snoop around the web sites and get an idea of how they tick as the worst thing you could do is have your money earning low interest and easy to get ahold of spend it on a toy that will bring short gratification rather then giving it time too grow to its potential for something important like furthering your education etc.Like e-trade where you could be buying stock once a month into a favorite product that you like. Also: Treasury bills or Saving bonds but those are low interest places but they prevent sudden urges to raid your account for the latest fashion as they are certificates and usually can't cash them for 6-months or 1-year with out penalties etc Another spot could be Kitco.com where you could put your $ into a pool account and buy silver, gold, platnum etc. during the drops and let it ride up and sell out. My point is there is more then one place (BANKS) to put your money and the younger you learn the quicker you $ can grow as you have TIME on your side. Most those other accounts take less then $50 to start and you would learn a tremendous amount of how the world of $ works. If you lost your money which would be doubtfull in any one of those at least you would learn how to make it work and your rate of growth could be many times over the 5% at the bank or what ever they pay now.Good luck.
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