Are You Thinking About Auto Sweep Facility in Savings Accounts - Than You Must Read This

Auto Sweep Facility is a banking feature in savings accounts which helps to converts excess balance above a set threshold automatically into a fixed deposit to earn higher interest rates.

How Auto Sweep Facility Works?

To activate this facility, you have to set a minimum amount to keep in savings say for e.g. Rs 15,000 for daily use.

If any balance (say for example Rs 35,000) exceeds Rs 15,000, than bank will automatically sweeps the excess (Rs 20,000) into FD account.

Extra amount earns FD interest instead of low savings interest.

If balance in saving drops below threshold, bank automatically breaks the last created FD and transfers funds back to savings instantly.

You get both benefits - liquidity of savings account with higher interest of FD.

Fixed Deposits are created for 1 year, but if broken early may get interest for actual period which means premature breaks apply lower rate for that tenure with penalty. Minimum 7 days holding often required or 0% interest.

Benefits of Auto Sweep

• Higher Returns: Extra money earns FD interest at a rates of 5-7% instead of savings interest at a rates of 2.5-3%. 
• Fully Automatic: No manual FD opening or closing. 
• Liquidity Like Savings: You can break withdraw anytime, bank automatically breaks FD. 
• Partial Withdrawals: Break only required amount, not full FD. 
• Better Idle Money Use: Excess earns FD rates without separate account. 
• Single Account Convenience: No new FD account needed, all managed under savings accounts. 

Major Drawbacks

• Premature Withdrawal Penalty: Some banks reduce FD interest rate if broken early.
• Complex Statement: FD sweeps and reversals may confuse account holders.
• Threshold Balance Requirement: If you don't maintain the set minimum balance, sweep won’t work.
• Taxable Interest: Interest on FD portion is taxable (TDS may apply if above limit).
• Bank Charges: Some banks may levy charges for enabling/disabling sweep facility.
• Fixed Amount Sweep: FD is created in fixed multiples, so small balances may still stay idle.

Conclusion

Auto Sweep sounds great for higher interest but hurts if you withdraw often its better to stick in plain savings or manual long-term FDs instead.