One of the best instruments to invest that can come in handy is the Sweep-In fixed deposits.
How a sweep-in fixed deposits work?
Say you have a balance in a savings bank account in Bank A of Rs 1 lakh. In a savings bank account, most banks offer you an interest rate of 3.5 per cent per annum.
Now, a fixed deposit we know can earn interest up to 7.5 per cent. Say, Bank A offers an interest rate of 7.5 per cent on its 2-year deposit.
So, say you sweep-in an amount of Rs 90,000 into fixed deposits, you will earn an interest at 7.5 per cent and not 3.5 per cent.
But, the important question that may arise is: What if I need the money for an emergency? You can withdraw partial amounts from the fixed deposit, while the balance will continue to attract a high interest rate of 7.5 per cent. Say, in the above example, you have only Rs 10,000 balance in your account, while you have issued a cheque for Rs 20,000. What the bank would do, is take the remaining shortfall of Rs 10,000 from your fixed deposit, while the balance Rs 80,000 will continue to attract FD interest rate.
How can you apply for a sweep-in facility?
The best way to apply for a sweep-in facility is by going through the net banking process. In most banks it could be under the "fixed deposit" icon.
A combination of high liquidity and superior returns
A sweep-in deposit offers you liquidity and superior returns. It easily beats returns from savings bank accounts for most banks, which is very loq at the moment.
Another big advantage is that you reduce the risk of being exposed to fraud, especially when there is large amount in the bank account. These days with debit card cloning the risk has increased even further. This is another advantage of opening a sweep-in facility fixed deposit.
In fact, we see no disadvantage as such. So investors should go for this, as the same is a very good option.