Friday, 23 March 2012

Auto Sweep Facility-Smart Move

grant cochrane
Is it not nice if money in your Savings Account could earn extra interest? Is this Really Possible?  YES this is possible by enabling Auto Sweep Facility that is provided by banks. Before we look into the details, let us quickly visit couple of Terms that we all know: Savings Account and Fixed Deposit.
Savings Account: It has great flexibility. For many of us, this is where the salary gets credited. The only drawback of savings account is the interest rate offered is very less.
Fixed Deposits: Attractive interest rate is the main attraction of Fixed Deposits.
What is Auto Sweep Facility: In simple terms it has all the good features of Savings Account and Fixed Deposit. In other words, it has flexibility of Savings Account and Potential to earn higher interest of Fixed Deposit.
Let’s brief it with an example:  You need set a Minimum/Threshold Limit.  Let us say Threshold limit of 5k. Any time the money in the account exceeds 5k, it is ready to be moved to Fixed Deposit. This is automatic process. You will start earning higher interest rate for the money that exceeds 5k.
Excited to see the details and Benefits?
Steps Involved in Auto Sweep Account:
  1. Set the Minimum or Threshold Limit Amount
  2. Set the Amount and Tenure for FD  and   That’s It. Enjoy the Benefits. J
Example: Ashwin a busy bee, working in IT organization. Every month a salary of 40K gets credited to his account. Ashwin is aware that money that is parked in savings account hardly earns any interest. He wants to convert them into FD's but due to his busy schedule, his plans of visiting bank and converting into FD's never materialize. Finally Ashwin gets to know about Auto Sweep Facility, he calls up the bank and provides information for above questions.
Here is what he does: sets up Minimum/Threshold Amount - 20k  and FD Amount -10K and Tenure- 1 year.
Now Ashwin’s Account is Auto Sweep enabled. Let us see how it works with few simple calculations for better understanding.
Ashwin's salary of 40K gets credited. The Process of Active Sweep comes into Picture.20K would remain in savings account and rest 20K gets converted into two Fixed Deposits of 10k each automatically.
Here goes a simple calculation.
Total Amount is in Ashwin’s is 40K and Threshold Limit is 20K.
Total FD amount to available for converting to FD is 40K-20K = 20K.   As Ashwin has set the FD amount to 10 k,   Two FD's of 10K are created automatically. This FD will start earning higher interest. Interest that is applicable for 1 year FD will be applicable.
Lets us see few scenarios:
  • What If Ashwin Withdraws 5k? : Money in Savings Account reduces to 15 K. No change in FD.
  • What is Ashwin Withdraws 25K? : Money in the Savings account is only 20K, Hence money from one of the FD is Reverse Sweeped. Finally: Money in Savings account =5k, One FD remaining.
Take away is: The simple concept of Auto Sweep Facility gives you the same flexibility of Savings bank and interest rate applicable for Fixed Deposits.
Note : Some banks offer this facility without any additional charges.
If you are yet to enable this, please call up the bank right now.

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