Flexi and Sweep-in Fixed Deposit Facility

Flexi and sweep in fixed deposit facilities can give a simple approach to achieve greater returns on your deposits in a savings bank account. However, if the facilities are not used efficiently, you may not obtain the required return. In other words, if you make withdrawals often from your savings account which is coupled with flexi and sweep in fixed deposit services, you will lose out on interest. Further, this will also confuse the computation of the returns, making it harder to compute how much interest you have actually managed to earn during the year.

Flexi Fixed Deposit-

A flexi-fixed deposit is a type of deposit that is offered by banks, and it is a specific sort of deposit.The depositor must manually add money to their deposit account in a flexi-fixed bank. A flexi FD provides the liquidity of savings accounts while also providing the high yields of fixed deposits to the depositor.

Unlike a sweep in deposits, where any money over a certain threshold is automatically swept into a fixed deposit, depositors must actively create a flexi account for the chosen duration. Sweep-in deposits, on the other hand, automatically remove funds when the savings account balance falls below a certain threshold.

Sweep-in Fixed Deposit-

This feature is offered by banks to their clients, in which a customer's savings account is connected to the customer's fixed deposit account. Saver must establish a money transfer limit for the duration of time in order to use this feature (the tenure of the deposit is normally one year but it can vary and go up to five years, and the interest rates can vary accordingly). The surplus amount in the connected fixed deposit account is automatically transferred when the balance in the linked savings account exceeds that limit.

This may be the case if, for example, you've linked your savings to your Sweep in FD account for the next year. Sweep in is a new feature that allows you to specify a limit (say, 50,000) above which any money would be immediately sent to your FD account. Assuming your current balance is 40,000, and you moved 30,000 from a customer to your savings, you now have a total of 60,000 in your account. In this situation, your bank balance will climb to 70,000, which is 20,000 more than the maximum you had set. Consequently, the bank will send the extra 20,000 to your connected FD account instantly.

How to efficiently use these facilities

Even while flexi-fixed deposits and sweep ins offer superior yields and liquidity, they're particularly handy for building up emergency savings. Sweep in deposits,  offer flexibility, but they should only be used if the depositor is able to keep cash over extended periods of time and isn't involved in an excessive number of transactions.

While the majority of banks do not charge a penalty for auto-sweep FDs, the service should be utilised prudently. This is because each time your income is deposited into an auto-sweep savings account, the excess over the MAB is transformed into one or more fixed-rate deposits. As you pay for various costs during the month, the savings account balance depletes, and some of your FDs are liquidated to fund the savings account. If you make frequent withdrawals from your FD, regardless of how much money you deposit, you will forfeit interest. This is because interest is computed on the basis of the number of days the FD was held by the bank. Thus, if the term of the FD was one year but you withdrew funds within 45 days, the appropriate interest rate will be 45 days.