The auto sweep facility is a combination of savings account and FD or fixed deposit account.
It carries with it the advantage of both facilities. With an auto-sweep account, your savings account is linked to a fixed-deposit account and a monetary limit is defined.
Whenever the amount in the savings account crosses that defined limit, the excess money is transferred automatically into the fixed deposit.
This way, your savings account balance can earn a higher rate of interest than it would have lying in a plain-vanilla savings account.
How does auto sweep facility work exactly?
You can define an upper limit for the amount you want to keep in your savings bank account, which is known as the threshold limit.
Whenever your balance is higher than your threshold limit, the surplus amount will be transferred to the FD account.
The technical term for this process is ‘sweep-in’.
Each of the accounts earns its own interest. However, the advantage of a sweep facility comes into play here – transferring into an FD does not mean that the amount loses its liquidity.
Whenever you require money from your account that is in excess of your threshold limit, the required amount will be transferred back to your online savings account from your FD account – like the cricketing term, this is known as the ‘reverse-sweep’
Explaining with an example will make it clearer
Let’s say that you have opened a savings account with an auto-sweep facility and the minimum balance required is Rs. 5,000.
You have deposited Rs. 30,000 and fixed a threshold limit of Rs. 10,000. The excess Rs. 20,000 will be transferred to your FD.
Both accounts will earn their respective interest rates. In this case, if there is a reverse-sweep, the transferred money will not receive the FD interest rate.
Thus, the banks’ advice to sweep account holders is not to make frequent transactions when an auto-sweep facility is attached to your account.
