May 31st, 2014 by bemoneyaware
For people who keep money in saving bank account one of the product suggested is Auto Sweep Bank Account. It gives the ease of withdrawing money i.e liquidity and at the same time earning a higher rate of interest on Fixed deposits tied to the savings bank account. In this article we shall explain what is Auto Sweep Bank Account? How does Auto Sweep Bank account works? Which banks offer Auto Sweep account? How do the Auto Sweep account of different banks differ.
What is Auto-Sweep Account ?
Auto Sweep is a facility which interlinks saving bank account with a Fixed Deposit account. In Auto Sweep account, amount in the bank above a limit is automatically transferred to Fixed deposits and earns a higher rate of interest. If balance of saving account becomes low and there is a need then Fixed Deposit will be broken and the amount will be moved back to Saving Account. Auto Sweep account provides the combined benefits of a Savings Bank account and Fixed Deposits.
Most of the Banks offer interest at the rate of 4% p.a. (some offer 6% – 7% interest on savings account). While Fixed Deposit for 1 year is around 8%.
Example of How Auto Sweep Account works
For example, Shyam has an auto sweep account with minimum balance of Rs. 5,000 threshold limit of Rs 40,000 and interest on saving bank account is 4%. On 1 May 2014 He has 30,000 Rs in his account.
As he has 30,000 Rs which is less than limit of Rs 40,000 So it remains in saving account
and earn regular interest i.e 4%.
Suppose on 5-May-2014 he deposits a cheque of Rs 50,000. Now balance in his account is Rs 90,000 which is above limit of Rs 40,000. So 50,000 will be put in Fixed Deposit and remaining 40,000 will continue to remain in the bank account. So for Rs 50,00 he will earn higher interest as it is in FD. For Rs 40,000 in saving bank account he will continue to earn 4%.
On 12-May-2014 he withdraws 20,000 from his account. Balance in his account becomes Rs 20,000 and Fixed Deposit of Rs 50,000 remains intact.
On 17-May-2014 he drops in a cheque to withdraw Rs 25,000 from his account. Balance in Saving Bank account is Rs 20,000. But bank will not dishonour his request. It will break the FD for Rs 10000 and move the amount to Saving Bank. He is able to withdraw the amount he requested, Balance in his account becomes 5000. Amount in his FD becomes Rs 40,000.
On 25-May-2104 he wants to withdraw Rs 5,000. Bank will again break the FD for Rs 5,000 and move this amount to Saving Bank. He is able to withdraw Rs 5,000. Amount in FD becomes 40,000. Amount in Saving Bank account is Rs 5000.
On 27-May-2014 he deposits Rs 50,000. So balance in Saving bank account becomes Rs 55,000. As this is above the threshold limit of Rs 40,000 and minimum balance of Rs 5,000 another FD is made for Rs 10,000.
Terms associated with Auto Sweep Account
Some typical terms associated with Auto Sweep Account are as follows: