If you belong to the category of people who keep all their money stashed in a typical savings bank account, you may be thinking that you are being very smart with your financial planning.
Most of us suffer from the childhood habit of keeping all our money stacked in places like old handbags, boxes or such unproductive places. That hasn’t changed much because even now you are keeping your funds at places where the returns or the rate of interest isn’t making much of a difference to your overall finances.
Savings bank accounts are definitely safe but the interest rate is a meager 3-4%. How about something that has the safety and stability of a savings account and the returns of a fixed deposit? Yes, it is true!
It is important to realize the value of the “sweep facility” or auto FD as it is known.
What is a sweep facility or auto FD
This option has come as a one point arrangement for all those who are dwindling between the dilemma of choosing between a savings account and a fixed deposit.
What it does is that it offers the flexibility of a savings account and the interest rate of a fixed deposit.
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How does it work?
The term looks a little tricky but there is nothing technical in it. You either have to open a savings account and link it to a fixed deposit or vice versa, then you have to set a limit for an amount (threshold amount) and anything equal to or more than that has to be maintained.
Generally, banks have variations regarding the conditions about the time period, amounts due, and other conditions, so be sure about what you choose.
Sweep in works when the money in your savings bank account exceeds the threshold amount and then it goes to your fixed deposit. Sweep out comes into picture when the threshold amount in your savings account falls short and the money from the fixed deposit gets credited to the savings account to make up for the remaining balance.
Give a serious thought to it before discarding the idea altogether. This simple example will surely help you.
If your monthly income is Rs 40000 and the expenditure is Rs 25000, then you can set a threshold limit of Rs 25000, and the remaining Rs 15000 will automatically go to your fixed account on the due date. If in any given month you have an amount less than Rs 25000 in your savings account, then the amount needed to make up the balance will be credited to your savings account out of the fixed deposit.
Isn’t it a friend in need by all means?! Moreover, there is no penalty for this shortfall in the savings account and you just have to make up for the lacking amount when your FD has matured and you want to withdraw the funds.
This surely has emerged as one of the greatest ways to have safe, flexible savings at high rate of interest.
This scheme may successfully establish you as a financial wizard amongst your friends. This figure will help you understand better the entire process. This financial calculator has been prepared with the help of some investment research, courtesy, The Economic Times: