A banking tool called the Auto Sweep facility was created to assist both people and businesses in getting the most out of their current and savings account balances.
No one (and we mean no one) has the time or patience to check their bank account every day, transfer money over the desired threshold into an FD (or other types of deposit), or withdraw money from another deposit to maintain a fixed balance in the current or savings account. This is the inspiration behind this brilliant piece of banking logic.
By using automation, banks decided to change the dynamic. The auto sweep facility appeared overnight.
Without further ado, let’s go right into this auto sweep exposé, decipher some technical terms, and see how this service benefits you.
How does Auto Sweep function? What is it?
When enabled, the auto sweep option transfers funds from your account that are in excess of a predetermined level to a deposit that offers you a higher return, typically a fixed deposit (FD). We refer to this as sweep-out.
The amount of the deficit comes back into your account once the balance in your account falls below the predetermined threshold. We refer to this as sweep-in.
At the conclusion of each working day, this procedure of sweeping the money into or out of your account ensures that the ideal balance is maintained in your account. In addition, a secure fixed deposit offers the highest rate of return for all of your additional funds.
Simplifying the jargon
You should be familiar with the following terms before using the auto-sweep facility:
Fixed-deposit tenure: often known as the term, is the length of time the FD has been established for. In order to qualify for the auto sweep facility, banks may only accept deposits for one year. Nevertheless, some banks provide fixed deposits with flexible duration.
LIFO or FIFO: The surplus money taken from your account is invested in FD units, usually in modest denominations per unit. To preserve the specified balance in your account, the bank may liquidate FD units using either the FIFO (First In First Out) approach or the LIFO (Last In First Out) method.
In the LIFO method, the bank will sell the FD units in which you most recently made an investment, and the proceeds will be deposited into your account. The FD units that were generated first under the FIFO procedure will be liquidated by the bank.
Pre-closure penalty: A fee assessed for taking money out of a fixed deposit before its term has run out.
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What advantages does the Auto Sweep facility offer you?
There are many advantages to allowing the auto sweep option, whether you are a business owner utilizing it through your current account or a salaried individual using it out of a savings account.
1. Increased FD rates
The possibility of earning interest on the money in your account is the main advantage of selecting the sweep service. To get a better idea of your expected returns, you may also use an FD interest calculator.
You can have plenty of cash thanks to the sweep service, which also guarantees a fair return on your investment. Imagine that your sweep current account is getting short on cash and that you have an EMI or a cheque that is coming due.
Your bank will instantly transfer the funds from the earlier invested amount to your account to ensure prompt payment of the EMI or the check, saving you time and effort.
The deposit time, maturity, and threshold amount are often yours to choose from with banks. However, FDs could have a required minimum holding term, and early withdrawal could result in interest loss.
4. Connecting numerous deposits
To guarantee you never experience a liquidity crisis, you can link numerous deposits to the current account for sweep-in. In these circumstances, banks typically follow the Last in First Out (LIFO) rule, which means that when a sweep-in is triggered, money will be moved to your account from the most current deposit made at the sweep-in facility.
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5. Separate corpus
In addition to having a higher interest rate, the sweep-in facility enables you to build up a corpus that you can use in an emergency without having to sell any other assets.
The auto sweep service is the best option if you want to save money, have a healthy balance in your current or savings account, and stay on top of your finances without having to fiddle with your bank account every day.