Bank depositors can transfer their money from SB account to fixed deposits and vice versa and benefit from the higher interest rate or meet liquidity needs.
Do you have excess cash in your savings bank account but do not have the time to invest in fixed deposit or in some other instrument to earn more returns? Or have you found yourself in a situation where you needed cash to meet sudden exigency and had to break up your fixed deposit, in the process losing a good chunk of the interest earned on the deposit? In the first instance, you wish your excess cash could be transferred automatically to some higher earning instrument and, in the second instance, you wish you could encash your fixed deposit without losing your interest. Well, the good news is that all this is possible if you open a hybrid account with your bank. Most of the banks offer such hybrid accounts with different facilities under different names. So how does this account work and what are the terms and requirements for opening such an account. Let’s find out.
Auto Sweep-In For Higher Returns
A savings bank (SB) or current account with an auto sweep-in facility provides increased returns by transferring the amount in excess of the threshold limit specified by the accountholder to fixed deposit (FD). This way, the accountholder gets the benefit of the higher rate of interest available for fixed deposits. The accountholders of ICICI Bank, Andhra Bank, State Bank of India and few other banks can avail of such auto sweep-in facility to earn higher rate of interest on excess cash in their SB or current accounts. Currently, SB accounts carry interest of 3.5 per cent per annum and current account do not carry any interest at all, while the FDs carry interest ranging from 2.5 per cent for 15 days to 7.5 per cent for a tenure of one year or more. Hence, if an accountholder has fixed his threshold limit at, say, Rs 50,000 and has Rs 80,000 in his SB account, the excess amount of Rs 30,000 in his account would be automatically converted into one or more FDs for a tenure which will give him higher rate of interest. For example, ICICI Bank transfers the amount in excess of the thresh-old limit into FDs in multiples of Rs 5,000 for a period of one year or a tenure of accountholder’s choice and the FDs are automatically renewed for a period of one year (or the period decided by the depositor) at the prevailing rate of interest.
Sweep-In For Liquidity
Then, there is the sweep-in facility provided by HDFC Bank, Kotak Mahindra Bank, IDBI Bank, Oriental Bank of Commerce, Andhra Bank, Standard Chartered Bank and few other banks. Through this facility, the customer’s SB or current account is linked with his FDs and any deficit or shortfall in the SB or current account is filled by transfer of funds from the linked FD. Hence, the accountholder can avail of cash as when he needs it. For Andhra Bank accounholders, this is called the reverse sweep as money is automatically transferred from FD to meet the deficit in SB or current account. In the case of such sweep-in from FD to SB or current account, the bank may transfer an amount which is exactly equal to the deficit or may transfer the entire amount of FD, depending on specific rules. In the case multiple FDs are linked to the account, then the bank will first transfer the amount from the last FD to meet the shortfall, and if this does not suffice, then it will transfer amount from the next latest FD, and so on.
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The Terms
The facilities of sweep-in or reverse sweep-in usually do not cost anything extra, but you may be required to maintain a certain minimum balance in your account to avail the facility. While ICICI Bank requires you to maintain a minimum balance of Rs 10,000 in SB account, HDFC Bank’s sweep-in facility without any charges mandates you to maintain a minimum balance of Rs 50,000 in your FD and if the balance falls below Rs 50,000 service charges applicable for savings or current account are levied. Bank [INSERT_1] of Rajasthan’s Flexi Fixed Deposit mandates you to maintain minimum Rs 10,000 in the FD and if do not maintain it, you have to pay Rs 100 per quarter.
Using The Facility Smartly
The hybrid accounts can be used smartly by accountholders to make the most of facility. Firstly, it should be noted that since the rate of interest for a tenure of less than 90 days is usually less than the rate of interest available on an SB account, it would be unwise to opt for a short tenure. One should choose the tenure so as to earn a higher rate of interest, but obviously it cannot be less than 90 days as one would stand to lose due to lower rate of interest on FDs of short tenure. Secondly, while going for an auto sweep facility, it is advisable to keep the threshold limit reasonably high so that the amount converted into FD remains there till maturity to earn higher rate of interest and does not get transferred back to SB account frequently.
Auto Sweep-In For Higher Returns