Auto-Sweep Account

Why you should enable Auto Sweep in your Bank Account

 

Do you have a Bank Account? Off-course you do! How much money do you have in your account? 5,000? 20,000? or a few lacs? If you have a lot of cash, lying idle in your Bank Account, and at the same time you don’t want to commit to long-term investment, you need to enable the Auto-Sweep facility in your Savings Bank account. This will make sure you earn good interest on a major part on the cash lying in your Savings account.

 

What is Auto-Sweep Account ?

“Auto Sweep” is a facility which provides, the combined benefits of a Savings Bank account and Fixed Deposits. Auto-Sweep facility interlinks your saving bank account with a Deposit account and makes sure any extra amount lying in your bank account above a threshold limit is automatically transferred to Fixed deposits and you earn better interest on your money.

How ‘Auto Sweep’ works?

This is how Auto-Sweep works. You define a “threshold limit”, and money up to that limit will be in the form of cash in your savings account and any amount above this, “limit” will automatically be converted into a Fixed Deposit and you will start earning normal FD returns on that part of the money. At any point in time, if you need money more than is lying in your bank account, the money lying in the Fixed Deposits is Reversed-sweeped into your savings account and you can withdraw the amount you wish.

Example

Ajay opens a new Savings Bank account with SBI. He enables Auto-Sweep facility on his savings bank account and defines the threshold limit of Rs 30,000 . Now suppose he has Rs 10,000 lying in the bank, He will be earning normal 3-3.5% interest on this money. After that if he deposits Rs 60,000 in his account, his total balance would be 70,000. But as this is above his “threshold limit”, the extra amount of 40,000 will be converted into a fixed deposit automatically and start earning returns equal to normal Fixed deposits with SBI (for example 8%). This way he always has 30,000 in his account for his daily requirements, and he has 40,000 converted into Fixed deposits which again is available to him incase he requires it.

Now suppose he has to withdraw 10,000 from his account, he will actually withdraw it from the cash lying in saving bank , and his balance will reduce to 20,000. However on the other hand if he wants to withdraw Rs 50,000 . then in that case, as his account balance will be just 30,000, an additional Rs 20,000 will be auto-reversed from his Fixed Deposit and he can withdraw total 50,000 .

Opportunity cost

A lot of us don’t bother about how much idle money is lying in our account and for how long. This happens because we think “I might need it soon, so lets not commit to any investment.” But then, the money keeps lying in the bank for months and months and sometimes even years.

Suppose your account has Rs 1 lac for 1 year, it will earn 3.5% interest on it, which is Rs 3,500 for a year. However if you have auto-sweep enabled in your savings account with threshold limit of Rs 20,000, the additional 80,000 will actually be in form of a fixed deposit and it will earn an interest of 8% (assumption). In this, you will earn 3.5% of 20,000 which turns out to be Rs 700 and 8% of 80,000 which is Rs 6,400 , a total of 7,100 , which is almost 100% more than the first case .

A lot of people have much more than 1 lac in their accounts, not just 1 lac. You can earn some extra returns if you just enable auto-sweep on your saving account . So find out if your bank provides the facility, just do it, and get it right away!

Also note that different banks have different names for this facility. For eg., ICICI Bank calls it ”Auto Sweep” , HDFC Bank calls it “Sweep-In” account , and SBI calls it “Saving Plus.” . Here is a list of other banks and the name by which they call this Auto-Sweep facility (thanks for Gopal Gidwani for the info)

• IDBI Bank – Sweep-in Savings Account
• Axis Bank – Encash 24
• Union Bank – Union Flexi Deposit
• HDFC Bank – Super Saver Facility
• Bank of India – BOI Savings Plus Scheme
• Oriental Bank of Commerce – Flexi Fixed Deposit Scheme
• State Bank of India – Multi Option Deposit Scheme
• Allahabad Bank – Flexi-fix Deposit
• Bank of Maharashtra – Mixie Deposit Scheme
• Corporation Bank – Money Flex
• United Bank of India – United Bonanza Savings Scheme

Disadvantages of Auto-Sweep Account

Auto-Sweep has some disadvantages too. In general the interest rates of normal fixed deposit and FDs under Auto-Sweep are same, but some banks charge a penalty if the FD under auto-sweep accounts are broken before some duration like 1 yr and 1 day . But I think that’s fine.  If not 8% , you will at least get 7%, still better than 3.5% .

Some banks are also known to give simple interest on the Auto-sweep Fixed Deposits and not compound interest as in case of normal fixed deposits .

Don’t over do it

While Auto-sweep is a wonderful thing for salaried class people who want to maintain liquidity, as well as want to earn more interest on their unused money, one should not over do it. If you are very sure that the money lying in your account will really not be used for long, better to use the normal Fixed deposit or Debt funds. Only if you are unsure of your money lying in bank and when you might need it, you should be using Auto-Sweep facility.

The way auto-sweep works, it makes it an ideal place to park emergency funds . So if you have kept 6 months of expenses as your emergency fund in Saving Bank, then you can enable auto-sweep facility and set threshold limit as 2-3 months of expenses, so that rest of the money can earn a better interest.