Why you should enable Auto Sweep in your

Bank Account
Do you have a Bank Account? Off-course you do! How much money do you have in your
account? 5,000? 20,000? or a few lacs? If you have a lot of cash, lying idle in your Bank
Account, and at the same time you don’t want to commit to long-term investment, you need to
enable the Auto-Sweep facility in your Savings Bank account. This will make sure you earn
good interest on a major part on the cash lying in your Savings account.

What is Auto-Sweep Account ?

“Auto Sweep” is a facility which provides, the combined benefits of a Savings Bank account and
Fixed Deposits. Auto-Sweep facility interlinks your saving bank account with a Deposit account
and makes sure any extra amount lying in your bank account above a threshold limit is
automatically transferred to Fixed deposits and you earn better interest on your money.

How ‘Auto Sweep’ works?

This is how Auto-Sweep works. You define a “threshold limit”, and money up to that limit will
be in the form of cash in your savings account and any amount above this, “limit” will
automatically be converted into a Fixed Deposit and you will start earning normal FD returns on
that part of the money. At any point in time, if you need money more than is lying in your bank
account, the money lying in the Fixed Deposits is Reversed-sweeped into your savings account
and you can withdraw the amount you wish.

Example:

Ajay opens a new Savings Bank account with SBI. He enables Auto-Sweep facility on his
savings bank account and defines the threshold limit of Rs 30,000 . Now suppose he has Rs
10,000 lying in the bank, He will be earning normal 3-3.5% interest on this money. After that if
he deposits Rs 60,000 in his account, his total balance would be 70,000. But as this is above his
“threshold limit”, the extra amount of 40,000 will be converted into a fixed deposit automatically
and start earning returns equal to normal Fixed deposits with SBI (for example 8%). This way he
always has 30,000 in his account for his daily requirements, and he has 40,000 converted into
Fixed deposits which again is available to him incase he requires it.

Now suppose he has to withdraw 10,000 from his account, he will actually withdraw it from the
cash lying in saving bank , and his balance will reduce to 20,000. However on the other hand if
he wants to withdraw Rs 50,000 . then in that case, as his account balance will be just 30,000, an
additional Rs 20,000 will be auto-reversed from his Fixed Deposit and he can withdraw total
50,000 .

Opportunity cost

A lot of us don’t bother about how much idle money is lying in our account and for how long.
This happens because we think “I might need it soon, so lets not commit to any investment.” But
then, the money keeps lying in the bank for months and months and sometimes even years.

Suppose your account has Rs 1 lac for 1 year, it will earn 3.5% interest on it, which is Rs 3,500
for a year. However if you have auto-sweep enabled in your savings account with threshold limit
of Rs 20,000, the additional 80,000 will actually be in form of a fixed deposit and it will earn an
interest of 8% (assumption). In this, you will earn 3.5% of 20,000 which turns out to be Rs 700
and 8% of 80,000 which is Rs 6,400 , a total of 7,100 , which is almost 100% more than the first
case .

A lot of people have much more than 1 lac in their accounts, not just 1 lac. You can earn some
extra returns if you just enable auto-sweep on your saving account . So find out if your bank
provides the facility, just do it, and get it right away!

Also note that different banks have different names for this facility. For eg., ICICI Bank calls it
”Auto Sweep” , HDFC Bank calls it “Sweep-In” account , and SBI calls it “Saving Plus.” . Here
is a list of other banks and the name by which they call this Auto-Sweep facility (thanks for
Gopal Gidwani for the info)

• IDBI Bank – Sweep-in Savings Account

• Axis Bank – Encash 24
 • Union Bank – Union Flexi Deposit
• HDFC Bank – Super Saver Facility
• Bank of India – BOI Savings Plus Scheme
• Oriental Bank of Commerce – Flexi Fixed Deposit Scheme
• State Bank of India – Multi Option Deposit Scheme
• Allahabad Bank – Flexi-fix Deposit
• Bank of Maharashtra – Mixie Deposit Scheme
• Corporation Bank – Money Flex
• United Bank of India – United Bonanza Savings Scheme

Disadvantages of Auto-Sweep Account

Auto-Sweep has some disadvantages too. In general the interest rates of normal fixed deposit and
FDs under Auto-Sweep are same, but some banks charge a penalty if the FD under auto-sweep
accounts are broken before some duration like 1 yr and 1 day . But I think that’s fine. If not 8% ,
you will at least get 7%, still better than 3.5% .

Some banks are also known to give simple interest on the Auto-sweep Fixed Deposits and not
compound interest as in case of normal fixed deposits .

Don’t over do it

While Auto-sweep is a wonderful thing for salaried class people who want to maintain liquidity,
as well as want to earn more interest on their unused money, one should not over do it. If you are
very sure that the money lying in your account will really not be used for long, better to use the
normal Fixed deposit or Debt funds. Only if you are unsure of your money lying in bank and
when you might need it, you should be using Auto-Sweep facility.

The way auto-sweep works, it makes it an ideal place to park emergency funds . So if you have
kept 6 months of expenses as your emergency fund in Saving Bank, then you can enable auto-
sweep facility and set threshold limit as 2-3 months of expenses, so that rest of the money can
earn a better interest.
All you wanted to know about a flexi bank
account
Today every product comes with a range of options to choose from. The keyword is to launch
products with exclusive features that will create a buzz and sell like hot cakes. Even the
conventional banking industry is no exception to this new trend.

What started off as an institution for the public with basic plans like savings account, fixed
deposit and recurring deposit have now spiced up things by introducing newer features in a
variety of packages. A flexi bank account is one such thing.

What are flexi bank accounts?

As the name suggests these bank accounts are flexible in the sense they give you the higher
interest of a fixed deposit and the liquidity of a savings account.

Your flexi account will allow you to meet your regular cash needs based on which you could set
your limits and transfer the remaining amount to your term deposit and get higher interest. And
guess what all this happens automatically once you set the rules.

For example, in a flexi account of Rs 1 lakh (Rs 100,000) for a year your flexi deposit will have
Rs 70,000 earning you a 5 per cent interest or Rs 3,500 every year.

The remaining Rs 30,000 would remain in your savings account waiting to meet your everyday
needs and at the same time earning 3.5 per cent interest or Rs 1,050.

And if you issue a cheque for Rs 35,000 the excess amount of Rs 5,000 would be transferred into
your savings account from your flexi deposit with no charge which depends on your bank terms.

Types of flexi bank accounts

Many banks offer different types of flexi bank accounts and each have its own rules regarding
the same. Broadly there are two categories: one, flexi fixed deposit account (FD) and two, sweep
account.

How does flexi fixed deposit work?

Simply put a flexi fixed deposit helps you withdraw funds whenever you require it. To begin
with you can open a fixed deposit ranging between Rs 25,000 to Rs 50,000 for a specific term
depending on your bank. There is also the option of enjoying a zero balance savings account for
a higher fixed deposit amount.
The benefit of a flexi fixed deposit comes into play when you require more funds than what you
have in your savings account. In such a situation your bank will withdraw from your flexi fixed
deposit the excess amount required and deposit the same into your savings account.

And if you have more than one fixed deposit then the bank will work on 'First In, First Out' or
FIFO basis thus breaking the first fixed deposit opened.

As said every bank has its own set of rules regarding flexi fixed deposit schemes. For example if
you hold a flexi fixed deposit account with IDBI Bank or ABN AMRO the fixed deposit is split
into units of Rs 1,000.

This means that if you want to withdraw Rs 16,200 these banks will transfer Rs 17,000 from
your flexi fixed deposit into your savings account. However, in the case of HDFC bank the fixed
deposit is split into units of Re 1 thus transferring only the exact amount needed and leaving the
balance in your flexi fixed deposit to continue to earn interest as per the bank's rate.

How does sweep account work?

Also called savings plus account the sweep account is the reversal of a flexi fixed deposit. To
begin with you should open a savings account, fix a minimum limit and the balance that exceeds
this limit in your savings account will be automatically transferred into your fixed deposit.

ICICI Bank's sweep account facility requires a minimum balance of Rs 10,000 in your savings
account the excess of which will be transferred to your fixed deposit in multiples of Rs.5, 000.
The sweep facility at State Bank of India (SBI) with a minimum of Rs 10,000 creates a new
fixed deposit whenever there is a transfer of money over and above Rs 10,000. Canara Bank's
[sweep facility has a minimum ceiling of Rs 15,000.

Pros and cons of both these accounts

A flexi fixed deposit account gives you the best of both worlds that is the higher interest of a
fixed deposit and the liquidity of a savings account.

Perhaps the biggest drawback of this system is that it can give you benefits only for a short term.
These types of accounts are only for a year as its main aim is to give you liquidity and higher
interest.

Most banks penalize the customers if their savings account falls below the predetermined level.
And there is a pre-closure charge in case of premature closing of these accounts.

The flexi fixed deposit does not allow reverse sweep facility that is funds from your savings
account cannot be transferred into your flexi fixed deposit whereas reverse sweep is possible in
sweep account.
There is a limit to the overdraft and there are a minimum number of months for the money to
remain in the account. Lastly, choosing to open these accounts would mean parking all your
funds in one place and hence no diversification of your portfolio.

How should you decide which one to choose?

If you are someone looking to make the idle money in your savings account to earn higher
interest then this flexi schemes might be helpful.

However, before you opt to open them you should carefully analyze your financial requirements
as you might be penalized for falling below the predetermined levels or pre-closing of accounts.
You should also take into account the drop in interest rates for fixed deposits from time to time.
Auto Sweep Facility: Smart way to make
your money work harder
Wouldn’t it be nice if any extra money with you could earn a good rate of interest, instead of the
dismal rate that you get from your savings account? There is a great way to achieve this –
through hybrid accounts and auto-sweep facility. Read on...

Almost all of us would have some extra money lying in our bank accounts.

The amount can be small or large, but most of us do have spare money in our regular savings
account that is either too little to invest somewhere, or is lying there while we think about
spending or investing it.

This money is not totally unproductive – you do get the regular savings account rate of interest
on it, which is in the range of 4% for most banks.

But can this money not work harder for us? Can it not earn a little more while it is lying idle?

It would be really great if this was possible, especially for some of us who are so lazy that they
keep large sums lying in their savings accounts.

Well, it is possible – through auto sweep facility (also called “Flexi Deposit Scheme” by some
banks).

What is auto sweep facility?

It is a great service, that combines the liquidity of a regular savings bank account with the high
yield of a fixed deposit (FD).

In a nutshell: An amount in excess of a pre-determined amount is automatically transferred to a

fixed deposit (FD). Thus, you earn a high interest rate on such amounts. When you want to
withdraw, such FDs are automatically broken, and you can withdraw just like a normal savings
account.

How does the auto sweep facility work?

1. You decide the maximum amount that you want in your account. This is also called the
threshold limit.
2. You decide the amount for which the FDs need to be created.
3. You decide the tenure of these FDs

After this, technology takes care of everything!

Whenever the amount in your account becomes more than the sum of the maximum amount you
specified (point 1 above) and the FD amount (point 2), an FD is created for the specified amount
and the specified tenure (in point 3). (This is called Sweep-in)

Whenever such a situation happens, a new FD is created. This means that any amount that you
deem as excess earns the interest rate of an FD!

Some banks also offer innovative investment avenues – for example, investing the amount in
liquid or money market (MM) mutual funds instead of investing in FDs.

Cost

The auto sweep facility is offered at no extra cost by most banks. Yes, this excellent facility is
absolutely free!

Interest Rate

The interest rate offered on these auto sweep FDs is the same as the rate offered on regular FDs
of that duration.

This means that instead of the paltry interest on the savings account, you can earn returns in the
range of 8% - 9%.

Liquidity

The auto-sweep facility is extremely liquid. You can operate the account exactly like a regular
bank account.

If the amount that you want to withdraw (through an ATM, cheque, etc.) is more than the amount
in your account, one of the FDs would be broken immediately (this happens automatically), and
you would get the money. (This is called Sweep-out or reverse-sweep)

The entire process is totally seamless – you wouldn’t even know that an FD has been broken till
you see your account statement!

Most banks follow the FILO (First In Last Out) approach for breaking the FDs. Thus, if an FD
has to be broken to provide for a withdrawal, the most recent FD is broken first.

Usually, there is no penalty for breaking these FDs.

Example

Let’s use an example to understand this better.

Let’s say you opt for the following:

The threshold limit: Rs. 10,000 Amount for which the FDs need to be created: Rs. 5,000 The
tenure of the FDs: 6 months

Suppose the balance in your account is Rs. 12,000, and your salary of Rs. 17,000 is deposited in
the account.

The balance becomes Rs. 12,000 + Rs. 17,000 = Rs. 29,000.

At this time, since the amount is over Rs. 15,000 (Rs. 10,000 threshold + Rs. 5,000 per FD), the
bank’s computer would automatically create 3 FDs of Rs. 5,000 each.

Thus, you would have 3 FDs of Rs. 5,000 each, and the account balance would be Rs. 14,000.

Now, let’s say you have to withdraw Rs. 3,000 for household expenses. You withdraw it from
the ATM, and the account balance reduces to Rs. 11,000.

Then, you also write a cheque for Rs. 1,500 to pay your credit card bill.

As soon as this cheque clears, the account balance reduces to Rs. 9,500, which is below the
threshold limit of Rs. 10,000. Thus, the bank would break 1 FD, and deposit the amount in your
account.

Thus, you would have Rs. 14,500 in your account, and would also have 2 FDs of Rs. 5,000 each.

(The calculation would be exactly the same even if you withdrew Rs. 1,500 from the ATM
instead of writing a cheque)

Which banks offer the auto sweep facility?

Almost all modern banks offer this facility, although it can be called by different names, like:

• Auto Sweep Account

• Sweep-In Account
• Flexi Deposit Scheme
• Flexi Fixed Deposit
• Premium Savings Account
• Multi Option Deposit (MOD)
• Savings Plus
• Freedom Deposit
• Two in One (2-in-1) Account
Some of the banks that offer this facility are:

• ICICI Bank
• State Bank of India (SBI)
• State Bank of Mysore
• State Bank of Patiala
• State Bank of Bikaner and Jaipur (SBBJ)
• HDFC Bank
• Axis Bank (UTI Bank)
• Corporation Bank
• IDBI Bank
• Kotak Mahindra Bank
• Development Credit Bank (DCB)
• Oriental Bank of Commerce (OBC)
• Indian Bank
• Global Trust Bank (GTB)
• Andhra Bank
• Jammu and Kashmir Bank
• Citibank
• Indusind Bank
What is a sweep account?

This is an innovative deposit option that allows you the convenience of a bank account
without compromising on the interest that your money earns compared with a long-term
investment vehicle like a fixed deposit (FD). Most leading banks in the country, including
public sector banks, offer this facility, but the name may vary. So, Syndicate Bank calls it
the premium savings account, at HDFC Bank, it's called the sweep-in facility, while at
Standard Chartered Bank it's the 2-in-1 account.

How does it work?

While some banks require you to open a bank account, which is then linked to an FD
account, others reverse the process and offer a sweep facility in lieu of overdrafts. In case
of the latter, as soon as you open an FD, you gain access to a savings or a current account
which, more often than not, has no minimum balance requirement. Should the balance in
your account be insufficient to meet the requirement of a debit instruction received by the
bank, funds from your FD will be automatically swept into your account in predetermined
blocks that vary from Re 1 to Rs 1,000, depending on the bank. At the same time, you only
lose interest on the block withdrawn. On the other hand, Syndicate Bank and Bank of
Baroda, among others, ask you to open a savings account first. On any day, if your account
holds more money than is required as per the minimum balance criterion, the excess funds
are automatically swept to the linked FD in predetermined units, ranging from Rs 1,000 to
Rs 5,000.

What is the advantage of this product?

For current account-holders, especially small businesses, a sweep account is a better option
than taking an overdraft on an FD. Not only can you withdraw the exact amount that you
need in case of an overdraft, there is a minimum amount stipulation which may be far more
than the money you need but you can make up for the interest you lose by making further
deposits in the FD account. At the same time, you don't need to pay the additional fee and
charges that an overdraft entails. This facility also works better than a regular savings
account. The money parked in the latter earns just 3.5% interest, but in a sweep account,
the excess money swept into the FD account will earn at least double the interest. Better
still, most banks allow you to link multiple FDs to your account. ICICI Bank has recently
introduced a pure online account called B2 linked with this facility.

What are the applicable eligibility criteria?

You either have to open a premium account, where the minimum average
monthly/quarterly balance is between Rs 25,000 and Rs 1 lakh, or take an FD of at least Rs
25,000.

Who stands to gain the most from this facility?

If you are sitting on idle cash reserves say, you are looking for investment options a few
months down the line a sweep account can help you manage money more efficiently.
‘Auto Sweep’ facility: Have you enabled it?
Retail banking in India has undergone a sea change in the last two decades. The change is visible
everywhere, right from operations to products. However, the real benefits of a new thing are
realised only when it is utilised completely. For example, in retail banking, savings accounts
hold a special place as customers use them for their day-to-day transactions like salary transfer,
loan repayment, electronic clearing services (ECS) payments. But these accounts offer a very
little interest on savings, i.e., 3.5 per cent! On the other hand, a traditional fixed deposit carries
an interest rate of 7 to 8 per cent. Since a major chunk of a person’s savings is kept in the savings
account he/she tends to lose money, but they can avert this loss by opting for Auto Sweep
facility.

Highlights
• ‘Auto Sweep’ combines benefits of a savings account and a fixed deposit account
• An amount above specified limit is transferred from savings account to fixed deposit
account automatically
• At the time of a higher withdrawal, money is reverse-swept from fixed deposit account

• Interest rates offered on ‘Auto Sweep’ deposit and traditional fixed deposit are almost
the same

What is ‘Auto Sweep’?

Today, all commercial banks offer ‘Auto Sweep’ facility – a combination of saving and fixed
deposit. Under this facility, you get two accounts – savings account and fixed deposit account –
interlinked.

It works like this:

First, a customer specifies the amount he/she wants to keep in his/her savings account or agrees
to the minimum amount as decided by banks for auto sweep. An amount above this specified
limit, called as threshold limit, is then automatically transferred to the customer’s fixed deposit
account, which is attached to the savings account. Thus, the money does not remain idle in this
arrangement and also earn a higher rate of return for the customer. Whenever the customer wants
to withdraw money greater than what he/she has in the savings account, the excess is reverse-
swept from his/her fixed deposit account. In this case, the customer earns interest as per the
prevailing fixed deposit rates for that particular period.

Understanding the ‘Auto Sweep’ facility

Let’s understand this with the help of an example.

Dev deposits Rs 30,000 in his ‘Auto Sweep’-enabled savings account on Jan. 1, 2008. The
defined threshold limit for his ‘Auto Sweep’ account is Rs 10,000 while the minimum balance
required by the bank is Rs 5,000. So, out of his total deposit, Rs 20,000 will go to the fixed
deposit account which offers a higher rate of interest. (Presently, one-year deposits carry an
interest rate of 8 per cent.) Dev withdraws Rs 15,000 on Jan. 1, 2009. Since he is already having
Rs 10,000 in his savings account (assuming that he has not done any transaction in this period)
and he has to maintain a minimum balance of Rs 5,000, he requires another Rs 10,000, which
will be taken from his fixed deposit account. He earns 8 per cent on the deposit of Rs 10,000
(remaining amount in the fixed deposit account) unlike in normal savings account where he earns
only 3.5 per cent. In case Dev withdraws all his deposits after a period, say, 5 months, he would
be entitled to get the prevailing deposit rates for 5 months, which in any case will be higher than
3.5 per cent, the current savings account rate.

Disadvantages of ‘Auto Sweep’

• Some banks ask to put the money transferred under the ‘Auto Sweep’ facility for a minimum
specified period. While interest rates offered on ‘Auto Sweep’ deposit and traditional fixed
deposit are almost the same, in case of the former any premature withdrawal attracts a penalty on
the total interest rate offered.

E.g., ICICI Bank requires ‘Auto Sweep’ deposit to be kept for a minimum period of 1 year 1 day.
Any premature withdrawal of deposit will attract a penalty of 1 per cent on the offered deposit
rate of 1 year 1 day. So, if the deposit rate offered on 1 year 1 day is 7 per cent and the amount is
withdrawn within 9 months, the effective interest rate will be 6 per cent.
• In traditional fixed deposits, all banks calculate cumulative interest, but in ‘Auto Sweep’
deposits, some banks calculate simple interest.

E.g., an amount of Rs 10,000 kept under the traditional fixed deposit will grow to Rs 11,449 at 7
per cent in two years while the same amount put in ‘Auto Sweep’ deposit will grow to Rs 11,400
at the same rate.

Are customers aware of this facility?

Auto Sweep facility is available in most of the commercial banks, but under different names, as
given in the Table. But not all customers are aware of it. While some banks claim to inform their
customers about the special schemes as and when they are launched, other banks prefer to keep
mum over it. Why are banks so reluctant about this facility? The reason lies in their CASA
(Current Account/Savings Account) ratio which helps banks reduce their cost of deposits, and in
turn increases their net interest income. Higher the CASA ratio, higher will be the net interest
income.

Table: Banks Providing Auto Sweep Facility

Minimum Threshold
Banks Sweep Facility
Limit (Rs)
ICICI Bank Auto Sweep 5,000
SBI Saving Plus 5,000
HDFC Bank Sweep-in 50,000
IDBI Bank Sweep-in 50,000
Kotak Bank Sweep-in 50,000
DCB Auto Sweep 25,000
Dena Bank Dena Sevifix 25,000
Corporation Bank CorpClassic 25,000
OBC Flexi Fixed Deposit 5,000
Yes Bank Smart Saver 25,000
Bank of India Saving Plus 25,000
Andhra Bank Freedom Saving 5,000
Source: Bank websites * The list contains only major banks.

Conclusion
The idea is simple. With Auto Sweep facility, investors get the best of both worlds – they enjoy
the liquidity of savings account and at the same time earn extra return from fixed deposit
account. This is the best way to channelise and utilise one’s unused savings, especially meant for
salaried people who often end up with some idle money in their savings accounts. So, if your
savings accounts are still not activated for the auto sweep facility, ask your bank officials to
enable it for the threshold limit as desired by you or to the bank’s minimum threshold limit.