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How To Get Higher Interest On Your Savings Account?

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With each passing day, despite promises to the contrary by government officials, any respite from high inflation appears a remote possibility. No wonder, the only way to survive is to tighten the purse strings while constantly scanning any opportunity to save. The financial advisory space, too, is abuzz with recommendations to make investments that will beat inflation. However, amidst the plethora of glitzy and complex investment products, the simpler options are often given a miss. Though there is no reason to ignore the advice from experts, it would also be worthwhile to look at the more humble, uncomplicated alternatives before setting your sights on the latest 'sophisticated' or 'customised' products.

To start with, you could delve into your safe or cupboard and take out the account-opening kit or any privileges/benefits manual from your bank, or simply, visit the bank's website. Several banks offer a feature that is often termed the sweep-in , sweep-out facilities to their accountholders . These are touted by banks as hybrid schemes combining the best features of a savings account and a fixed deposit. Essentially, these are projected as facilities that can make your idle cash work for you by fetching returns over and above the savings bank rate of 3.5% per annum. However, the features are not always uniform across the banks, which means that you need to take a close look at the fine print before signing up for this facility. Here's what you need to know about sweep-in , sweep-out facilities to get the best out of them:

MANAGING LIQUIDITY

Typically, the amount not required by an individual in the foreseeable future is transferred to a fixed deposit or directed towards other investments. They generally keep a higher amount in their savings bank account than what may be required, as the tendency is to err on the safer side. After all, nobody likes the idea of breaking a fixed deposit. At the same time, this concern over the possible penalty keeps them away from the returns they would have surely earned had the amount been directed to a fixed deposit instead. This is where the sweep-in-sweep-out kind of facilities come in — banks promote this facility as a one-point solution for this dilemma . They ensure both liquidity and the scope to earn the rate of interest available to the bank's regular fixed-deposit holders. Banks have been regularly making attempts to popularise this facility amongst their customers , resulting in some success . "Sweep-out contributes to around 10% to the total FDs booked in a month and Super Saver contributes to around 1% to the total FD base," says Surinder Chawla, head, retail liabilities products, HDFC Bank, which offers two such facilities. Adds Puneet Kapoor, executive vice-president , Kotak Mahindra Bank, "Around 44% of our total retail term deposit book is in Activmoney and 30% of our total active retail customer base has opted for this feature."

SWEEP-OUT …

Generally, when you decide to opt for the facility, a fixed deposit is linked to your savings account. You have to determine a threshold for the balance to be maintained in your savings account at all times. Any amount exceeding this limit then gets automatically 'swept out' to this fixed deposit. However, depending on the bank and even the account type, there could be variations in the structure . "For instance, the bank could allow the customer to determine this limit as long as it is above a certain amount versus the limit being pre-fixed by the bank," says Harsh Roongta, CEO, Apnapaisa .com. "Also, thefixed deposits could be in bundles of say Rs 1,000 rather than a lump-sum deposit of the amount." This apart, some facilities of this sort could allow the accountholder to determine the duration of the fixed deposit as against the tenure being decided by the bank. Take, for instance, SBI's Savings Plus Account, where the accountholder can choose the tenure of the deposit from one year to five years. In contrast, Kotak Mahindra Bank's Activmoney facility works differently . Here, the balance above a threshold in the current/savings account is transferred to a term deposit with a 181-day-tenure . In case of insufficient funds in the current/savings account, funds in the term deposit are swept into the former. The sweep in/out has to be in units of Rs 10,000.

…AND SWEEP-IN

The sweep-in feature, on the other hand, gets activated when you need to withdraw money or issue a cheque where the amount exceeds or breaches the threshold limit. To make good the shortfall in the savings account balance, the linked fixed deposit is broken and the required amount is 'swept into' your savings account. "In case of sweep-in , the amount swept-in will be paid interest which is lower of the original contracted rate and the rate applicable for the amount of time the deposit was with the bank. The remaining amount of the FD will keep earning the contracted rate of interest at which the deposit is booked," says HDFC Bank's Chawla. The FD is broken only to the extent of the amount required – and usually on a last-in , first-out (LIFO) basis — which means that you do not lose out on the interest on the entire FD amount. 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. "If the deposit is prematurely withdrawn (in full or part), the with-drawn amount gets interest on the applicable rate for the tenure the money remained with the bank instead of the original contracted rate. We do not levy any penalty as of now," says Kapoor of Kotak Mahindra Bank. However, some banks have started charging a premature withdrawal penalty, so study the terms and conditions carefully before opting for, and actually using, this facility. Often, financial planners stress on the importance of building a contingency fund to take care of your needs to deal with a financial emergency like a job loss or an unexpected major expenditure . According to them, an amount capable of taking care of at least six months' expenses should be kept aside in a liquid instrument . You would do well to consider this facility if you are looking for an avenue to park such a corpus.

Put Your Savings on Autopilot

The sweep-out facility moves specified excess cash from your savings account to higher interest rates in savings account bank india

your fixed deposit. The money can be swept in whenever there is a shortfall in the savings account

HOW TO USE THE SWEEP FACILITY

Sweep-in , sweep-out facilities are billed as tools to make your idle cash work for you Under this facility, you can link your savings account to a fixed deposit offered by the bank The facility will ensure that any excess amount over the pre-set threshold limit gets transferred to the fixed deposit If you need to withdraw beyond the threshold limit, the amount required gets 'swept-in' to your savings account The arrangement eliminates the need to break the entire FD. You lose interest only on the amount actually used It also does away with the need to retain a huge amount in your savings bank account to ensure liquidity, thus prevents losing out on possible interest earnings

Source: Economic Times