There may be times in your life when you do not have enough money in your Savings Account to cover an emergency or any necessary bills. If you have limited funds and need to pay for an expense right away, you may find yourself in a bind. What can you do if a situation like this arises? One option is to pay with your Fixed Deposit.
When compared to a standard bank account, fixed deposits offer a higher interest rate. However, the disadvantage of FDs is that they do not provide the same level of flexibility and liquidity as bank accounts. Enter the sweep-in Fixed Deposit facility, which combines the best of both worlds! With the sweep in facility, you no longer have to worry about having insufficient funds in your account for a transaction, and you no longer have to deal with the embarrassment of cheques bouncing.
What is Fixed Deposit sweep-in?
When you apply for the sweep-in facility, the bank divides the specified FD into 1 rupee units. This ensures that funds are available in your sweep-in Savings or Current Account, whichever is linked. This ensures that cheques or other debit transactions from your account are not hampered as a result of insufficient funds in your Savings/Current Account. The facility is only available to Indian residents, HUFs, private and public companies, and others.
Some important points to keep in mind-
- Some banks have a maximum/minimum limit for FDs that can be swept in.
- Customers who want to use the sweep-in facility for large ticket FDs may not be able to do so online and may be directed to a bank branch.
How does a sweep-in facility function?
For example, suppose you have a sweep-in facility on your Savings Account that is linked to a Rs.10,000 FD.
You wrote a Rs7,000 check. However, the savings account balance is only Rs.2,000. The bank will now deduct the remaining Rs.5,000 from the FD linked to your Savings Account and withdraw the funds to transfer to your Savings Account. So the check is accepted.
What are the advantages?
Higher FD rates
When your Savings Account with sweep-in facility is linked to your FD, you can benefit from the FD's high interest while still having the option of liquidity. You can get a sense of the interest rate by using the FD interest calculator, which will help you make an informed decision.
It provides the most liquidity. If you are about to receive an EMI or a cheque and you are running low on funds in your Savings Account, which has been chosen to be linked with an FD for the sweep-in facility, the bank will simply transfer or sweep in funds into your Savings Account to save you from embarrassment and a poor credit score.
Multiple deposits can be linked to a Savings Account.
You can link multiple deposits to the Savings Account for sweep-in to ensure you never run out of cash liquidity. In that case, the bank follows the LIFO (Last in First Out) rule, which means that when the sweep-in is triggered, funds are transferred first from the last deposit linked for the sweep-in facility to your Savings Account.
Banks are accommodating in that you can choose the deposit period, maturity date, and payment method. There could be a self-imposed limit on the amount of money kept in savings and current accounts. There may also be a minimum holding period for FDs, after which the interest rate is reduced.
How does one apply for a sweep-in facility?
NetBanking is the easiest method of applying for a sweep-in facility. Here's how to use the sweep-in service.
- Log in to your NetBanking account.
- Select 'Fixed Deposit Sweep-in'. It is accessible via the Fixed Deposit tab.
- You must select the Savings Account and FD numbers that will be linked for the sweep-in.
- To activate the facility, click 'continue' and 'confirm'.