Did you know that you can manage liquidity of funds while also earning interest on FD by using the sweep in FD facility? You don’t need to worry about inadequate funds in your bank account and parallelly you can also make your idle funds earn money. Read on to know more.
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What is a sweep in FD?
A sweep in FD allows investors to transfer excess funds from their savings account to a FD automatically. It safeguards against insufficient funds in your bank account. You can continue to earn interest and also have liquid funds, both at the same time.
How does a sweep in FD work?
One has to first option for a sweep in FD and then link the savings bank account to the FD account. One has to mention the threshold amount. Any balance in excess of the threshold amount will be transferred to the FD.
Lets understand this more clearly with an example. Brij has a savings account and he also opened a sweep in FD account with his bank. He has given Rs 50,000 as the threshold amount. This means when the balance in his savings account exceeds Rs 50,000, the excess will be sweeped in to FD. Suppose the balance increases to Rs 75,000. The excess Rs 25,000 will be sweeped in to FD.
If the balance in savings account falls to Rs 40,000 then Rs 10,000 will be removed from FD and added to the savings account. This movement from FD to savings is called sweep out or reverse sweep.
Key terms in sweep in FD
- Linkage – The savings bank account is linked to sweep in FD.
- Threshold – The amount you set as a limit in savings bank account.
- Transfer – When the balance exceeds the limit, the excess is swept into FD.
Advantages of a sweep in FD
- The facility encourages disciplined savings.
- Setting up a sweep in FD is easy and can be done through banking mobile app.
- Liquidity is always available as the FD units can be broken anytime.
- You can earn higher interest on funds exceeding the threshold amount.
How to apply for sweep in FD?
- First, login to your netbanking.
- Search for option ‘Sweep in FD’. You can find it in the FD tab.
- Provide details of the savings account number and the FD account that you want to link with the sweep in facility.
- After entering the details, you will be prompted to verify the information. Ensure accuracy of data entered and click on ‘continue’.
- Next, click ‘confirm’ on the confirmation page to activate the sweep-in FD service on your account.
What is a sweep out facility?
A sweep out facility is the exact opposite of sweep in facility. If there is a deficit in the savings account, the deficit amount is transferred from the FD account to the savings account. Suppose you have set a threshold amount of Rs 50,000 for the sweep in facility. After all your monthly expense are done, there is only Rs 30,000 in your savings bank account. In this case the deficit amount of Rs 20,000 (50,000-30,000) will be transferred from your sweep in FD account to your savings bank account.
You can opt for the sweep out feature with your sweep in FD facility. You have to set the minimum balance that you want to maintain in your savings account. Anytime the balance falls below your set amount, it will be restored automatically from the FD account to your savings account.
A sweep in FD is a useful tool for daily money management. You can earn interest and also ensure liquidity if you keep a certain amount in a sweep in FD.
