Best way to grow money is to invest it in stocks, real estates, gold, and modern crypto currencies, but what about liquidity? Holding some cash, bank balance is definitely needed for an emergency situation.
...And some people aren't ready to take risks from the market, and choose banks as their only option.
No one knows how much to save, so most people put large liquid cash in their savings account, earning meagre 2.9% - 4% annual interest.
Fixed deposits are known to be a risk free way of earning these days, giving a whooping 6% - 8% interest annually, with the only disadvantage being liquidity. When there's a cash crunch, one has to pay penalty charges to withdraw the funds prematurely from fixed deposits.
To tackle this, there's a facility called ‘auto-sweep'.
What is the auto-sweep facility?
Auto Sweep allows you to link your savings account with your fixed deposit account, eliminating the disadvantages of both schemes. Through the auto sweep facility, one can set a monetary threshold limit for their savings account, and when the funds cross that limit, the excess amount automatically gets transferred to FD account.
This way one can earn a higher interest rate without any extra effort.
The mechanism of auto sweep
Opting auto sweep facility, You can set a monetary limit for your savings account. Once the funds in savings account crosses that monetary limit, the excess amount gets automatically transferred to FD account. This is called sweep in.
And the real advantage of auto sweep lies here - Unlike traditional fixed deposits, the amount transferred to FD through auto sweep doesn't lose its liquidity. It means your savings account plays the role of overdraft without any charges! The amount you withdraw exceeding savings account balance will be transferred from FD. This is called reverse sweep.
To make it simple, Let’s say that you have opened a savings account with an auto-sweep facility. Let's assume the minimum balance required is nil, and you've set the monetary limit for auto sweep to be 100000. You have deposited 70000, and it earns you a basic interest of 3%. Now, your employer has paid the salary of 120000 to your savings bank account. The excess of 100000 i.e., 90000 will be transferred to your FD, and this 90000 will earn you 7.5%. Assume that suddenly you required 120000, but your savings account has just 100000! Here's where the auto sweep sweeps out. With the auto sweep facility, like an overdraft account, You can withdraw 120000 from your savings bank account. And within quick span 20000 from your FD account will be reverse sweeped to your savings account, making your savings account balance 0. Your FD balance would be 70000. And what's more, you won't get charged for withdrawing that amount from FD.