Flexi Deposits / Auto Sweep Fixed Deposits: A Good Banking Service : Finance Trading Times

Flexi Deposits / Auto Sweep Fixed Deposits: A Good Banking Service

Details about Flexi Deposits / Auto Sweep Fixed Deposits / Easy Fixed Deposits or FD in India and how to use them for maximum benefit.

Since last many years, many Banks in India (and abroad) have offered flexi deposit or auto sweep saving schemes. In this article, we will cover all the details of such Flexi Deposits / Auto Sweep Fixed Deposit schemes and see how to utilize them for good benefit.

What is actually a Flexi Deposits / Auto Sweep Fixed Deposits?
A Flexi Deposits / Auto Sweep Fixed Deposits is a special saving scheme where based upon a "condition", some part of your money lying in your saving bank account earns higher interest than the standard interest offered on savings bank account. For e.g. if the interest offered on your savings bank account is 4%, then it is possible to earn higher interest of say around 9% for some part of your money lying in savings bank account, based upon certain conditions.

Flexi Deposits / Auto Sweep Fixed Deposits working Explained with Example

How does a Flexi Deposits / Auto Sweep Fixed Deposits work?
Let's understand this with the help of an example and a simple chart.
Say you have 100,000 Rs. in your savings bank account. Your bank offers "Auto Sweep Facility" and you opt for it.
The Auto sweep fixed deposit facility is offered on a condition. Condition is that any amount above (say) Rs. 25,000 will get converted to a fixed deposit (FD) with say 1 year maturity and will give higher rate of interest as fixed deposits for 1 year. Suppose interest rate offered for 1 year FD is 10% per annum. So if you opt for this "Auto Sweep Fixed Deposit Scheme" with 1 year maturity period option, then this is how your money will earn interest:

Your amount: Rs. 100,000-00
Standard saving account interest rate: 4%
Bank offered 1 year Fixed deposit interest rate: 10%

Without "Auto Sweep Fixed Deposit Scheme", in one year your amount of 100,000 will become 104,000-00 Rs.

With "Auto Sweep Fixed Deposit Scheme", here is how the calculation goes:
Threashold Amount 25,000
Amount above threashold (100,000 - 25,000) = 75,000

Rs. 25,000 will continue to earn interest at standard 4% interest rate, while 75,000 will get converted to Fixed Deposit with 1 year maturity offering 10% (higher interest rate).
So assuming you keep 100,000 in your account for 1 year, after one year you will have:

- 25,000 + (4% of 25,000) = 26,000
- 75,000 + (10% of 75,000) = 82,500
Total = 108,500-00 Rs.

Now compare this amount to that gained when the entire 100,000 was kept without "Auto Sweep Fixed Deposit Scheme". You are gaining more than double interest with auto-sweep - 4,500 Rs. extra in this example

Continue onto Auto Sweep-in Sweep-out accounts: Beware of conditions and restrictions
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