Updated on: Sep 15th, 2023 | 10 min read
A traditional investment instrument, Fixed Deposits offer assured returns over a fixed term. When you invest in an FD, you deposit a lump sum with a bank this deposit earns a fixed interest rate throughout the tenure. However, the catch here is that the amount you have deposited in an FD gets locked for the entire term.
Even if you need to withdraw a part of the amount before the FD matures, you will be charged a penalty and might lose out on the interest income for the entire amount.
Therefore, if you need to maintain a certain degree of flexibility over your FD, you can opt to invest in a sweep-in FD. Such FDs allow you to enjoy the interest rates of a regular FD with the flexibility and liquidity features of saving accounts. Curious to know more? Keep reading to learn about fixed deposit sweep-in meaning and its features in detail.
A fixed deposit sweep-in is a type of fixed deposit where a savings or a current account gets linked to your FD. You have to specify a minimum balance to be retained in your savings account, and any amount beyond this is swept into the FD with no extra hassle.
Hence, a sweep-in FD allows you to earn higher interest rates on your surplus money while maintaining minimum liquidity. If you run short of funds in your savings account, you can withdraw the same from the linked FD without attracting penalties.
Let’s look at the features of a sweep-in Fixed Deposit:
You need to have a bank account in the same bank and set the cut-off amount, beyond which all else gets transferred to the FD.
E.g. Let’s say your savings account balance is Rs. 35,000, and you set up a sweep-in FD with an instruction to maintain a minimum balance of Rs. 30000 in your savings account. After keeping the minimum of Rs. 30000, the remaining Rs. 5000 will be swept into the FD. Now, suppose you need to withdraw 32000 to pay rent. After deducting Rs. 30000 from your savings account, Rs. 2000 will be automatically drawn from the sweep-in FD.
You can avail of a sweep-in facility both online and offline. For online mode, you must log in to your net banking account and link your savings/current account to your fixed deposit. Set a limit beyond which the surplus will be transferred to the FD. You will also have to select a tenure for the FD.
You can also do the same by visiting a bank branch where you wish to have your sweep-in FD.
To be eligible for the sweep-in facility, you must invest a minimum of Rs. 25000 in the FD. Additionally, premium account holders having a balance of Rs. 25000 – Rs. 100000 are also eligible for the sweep-in facility on their FDs.
Let’s look at some of the advantages and disadvantages of investing in a sweep-in FD:
Sweep-in FDs give you the best of both worlds, where you can enjoy a higher interest rate of a fixed deposit and maintain high liquidity. It is a perfect instrument for those with medium to large amounts of liquid funds with limited withdrawal needs.
Moreover, these accounts are convenient to manage through internet banking, and there are no extra charges for maintaining them. You can convert your existing FD into a sweep-in FD with a few clicks. Just be aware of the pros and cons before you start investing!
How is a sweep-in fixed deposit different from a Flexi deposit?
The primary difference is while in a sweep-in FD the surplus automatically gets transferred, in the case of a Flexi deposit you will have to add it manually.
Do I have to pay tax on the interest income from a sweep-in FD?
Yes, the interest income from a sweep-in FD is taxable per your income slab rate as per the Income-tax Act, 1961.
What is a Sweep-out facility?
A sweep-out facility is the reverse of a sweep-in, i.e.; if the balance in your linked savings or current account falls below the specified minimum, it is replenished by sweeping out the difference from the FD.
Can I link multiple FDs to one savings account?
Yes, you can link multiple fixed deposits to a single savings account.
Can I link multiple savings or current accounts to one FD?
No, you can link only one account to one FD.