While fixed deposits (FDs) offer consistent risk-free returns on your hard-earned savings, you can open a sweep-in fixed deposit if you are looking for flexibility and liquidity with your funds. The sweep-in deposit facility allows you to set aside excess funds from your bank account to your fixed deposit account to earn high returns. How? As a depositor, you set a specific limit on your bank account. When the account balance exceeds the specified limit, the surplus amount gets transferred to the linked sweep-in fixed deposit.
Let’s understand how a sweep-in fixed deposit account works.
Understanding Sweep-In Fixed Deposits
Suppose, you want to maintain Rs. 35,000 in your savings account for your day-to-day expenses, your current balance is Rs. 20,000, and Rs. 30,000 gets credited to your account. You now have an excess of Rs. 15,000, which will get transferred to the sweep-in fixed deposit account. This amount will collect the same interest as the FD.
You can avail of this facility to invest funds from both your savings and current accounts. With a sweep-in FD, you can automatically invest excess money lying idle in your bank account with standing instruction.
Moreover, banks offer you the flexibility to decide your deposit’s tenure, payout frequency, and maturity options. You can choose a balance you are comfortable maintaining in your current or savings account.
Benefits of Sweep-in FDs
Asides from collecting interest income, you can also withdraw funds from the deposit without breaking it to fulfil any emergency financial requirements. Therefore, you don’t lose out on interest on your FD but only the withdrawn swept-in money.
Here, you aren’t required to pay any penalty charge or fee to draw funds from the sweep-in fixed deposit. The tenure of sweep-in FDs can range from one month to five years, depending on the bank.
Just like the deposit’s tenure varies from one bank to another, interest rates can also differ. However, the transferred amount is highly likely to earn you a higher rate when compared to a savings bank account.
Besides a more competitive interest rate, the sweep-in facility also allows you to have a separate corpus for financing emergencies. This way, you don’t have to liquidate your FDs or dip into other investments.
Documents Required To Open a Sweep-in FD
While the documentation requirements can differ from one bank to another, the basic documents required are the following:
- The sweep-in deposit application form
- Passport-size photo
- Address proof such as telephone bill, passport, electricity bill, bank statements with a cheque
- Identity proof such as your passport, Aadhar card, government ID, driving license, senior citizen ID (if applicable) or PAN card
How Is a Sweep-in Deposit Different From Sweep-Out Deposit?
Contrary to sweep-in deposits, if your savings/ current accounts face a deficit, this amount is transferred from the FD to your account through the sweep-out facility. You can specify the minimum balance that you want to be maintained in your account. This way, whenever the account balance drops below the specified limit, the FD account will transfer the necessary funds.