So what is Sweep Account?
A sweep transfer account is integration of your normal savings account to an investment account. There are a lot of unused funds laying in your savings bank account which earns a negligible rate of interest. These unused funds can give much more return with no effort.
How Does this Facility Work?
Any amount that exceeds (or fall of) a certain level the pre-set limit in a savings account is automatically transferred to the fixed deposit earning higher interest earning option at the close of each business day. This excess cash is swept into money market funds.
If one needs to withdraw a sum that is more than the pre-set limit, the required amount gets swept back into his account.
This is done to provide the customer with greatest amount of interest with minimum amount of personal intervention. Investor using this facility enjoys liquidity of savings accounts and at the same time earns extra return from fixed deposit account.
MINIMAL LOSS OF INTREST IN CASE OF PREMATURE BREAK OF FIXED DEPOSIT
The FD is broken only to the extent of amount required and usually on the LAST IN – FIRST OUT (LIFO) basis which means that one does not lose the interest amount on entire FD rather only on the amount prematurely withdrawn. The LIFO method of transferring funds back into your savings account on demand ensures minimal interest loss, as the amount swept in last is withdrawn first.
TOOL TO PREVENT OVERDRAFT
In case of insufficient funds, bank will automatically break unit of term deposit held sweep-in savings/ current account to clear the demanded funds. This facility of Sweep-in gives the customer high interest rates of a fixed deposit account and liquidity of a current account.
BENEFITS OF SWEEP-OUT FACILITY
Maximize Returns: Money is never idle, creation of a linked FD ensure a higher rate of interest as against savings bank interest rates.
Hassle free FD Booking: Automated FD booking based on threshold. Customer does not have to visit / contact branch to book FD and thus making the same hassle free.
Maximize Flexibility & Liquidity: Sweep-out comes along with the sweep-in facility. Thus the shortfall of funds in customer’s savings bank a/c can be addressed through sweep-in of funds from FD booked through sweep-out.