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‘Auto Sweep’ facility: Have you enabled it?
Retail banking in India has undergone a sea change in the last two decades. The change is visible everywhere, right from operations to products. However, the real benefits of a new thing are realised only when it is utilised completely. For example, in retail banking, savings accounts hold a special place as customers use them for their day-to-day transactions like salary transfer, loan repayment, electronic clearing services (ECS) payments. But these accounts offer a very little interest on savings, i.e., 3.5 per cent! On the other hand, a traditional fixed deposit carries an interest rate of 7 to 8 per cent. Since a major chunk of a person’s savings is kept in the savings account he/she tends to lose money, but they can avert this loss by opting for Auto Sweep facility.
- ‘Auto Sweep’ combines benefits of a savings account and a fixed deposit account
- An amount above specified limit is transferred from savings account to fixed deposit account automatically
- At the time of a higher withdrawal, money is reverse-swept from fixed deposit account
- Interest rates offered on ‘Auto Sweep’ deposit and traditional fixed deposit are almost the same
What is ‘Auto Sweep’?
Today, all commercial banks offer ‘Auto Sweep’ facility – a combination of saving and fixed deposit. Under this facility, you get two accounts – savings account and fixed deposit account – interlinked.
It works like this:
First, a customer specifies the amount he/she wants to keep in his/her savings account or agrees to the minimum amount as decided by banks for auto sweep. An amount above this specified limit, called as threshold limit, is then automatically transferred to the customer’s fixed deposit account, which is attached to the savings account. Thus, the money does not remain idle in this arrangement and also earn a higher rate of return for the customer. Whenever the customer wants to withdraw money greater than what he/she has in the savings account, the excess is reverse-swept from his/her fixed deposit account. In this case, the customer earns interest as per the prevailing fixed deposit rates for that particular period.
Understanding the ‘Auto Sweep’ facility
Let’s understand this with the help of an example.
Dev deposits Rs 30,000 in his ‘Auto Sweep’-enabled savings account on Jan. 1, 2008. The defined threshold limit for his ‘Auto Sweep’ account is Rs 10,000 while the minimum balance required by the bank is Rs 5,000. So, out of his total deposit, Rs 20,000 will go to the fixed deposit account which offers a higher rate of interest. (Presently, one-year deposits carry an interest rate of 8 per cent.) Dev withdraws Rs 15,000 on Jan. 1, 2009. Since he is already having Rs 10,000 in his savings account (assuming that he has not done any transaction in this period) and he has to maintain a minimum balance of Rs 5,000, he requires another Rs 10,000, which will be taken from his fixed deposit account. He earns 8 per cent on the deposit of Rs 10,000 (remaining amount in the fixed deposit account) unlike in normal savings account where he earns only 3.5 per cent. In case Dev withdraws all his deposits after a period, say, 5 months, he would be entitled to get the prevailing deposit rates for 5 months, which in any case will be higher than 3.5 per cent, the current savings account rate.
Disadvantages of ‘Auto Sweep’
• Some banks ask to put the money transferred under the ‘Auto Sweep’ facility for a minimum specified period. While interest rates offered on ‘Auto Sweep’ deposit and traditional fixed deposit are almost the same, in case of the former any premature withdrawal attracts a penalty on the total interest rate offered.
E.g., ICICI Bank requires ‘Auto Sweep’ deposit to be kept for a minimum period of 1 year 1 day. Any premature withdrawal of deposit will attract a penalty of 1 per cent on the offered deposit rate of 1 year 1 day. So, if the deposit rate offered on 1 year 1 day is 7 per cent and the amount is withdrawn within 9 months, the effective interest rate will be 6 per cent.
• In traditional fixed deposits, all banks calculate cumulative interest, but in ‘Auto Sweep’ deposits, some banks calculate simple interest.
E.g., an amount of Rs 10,000 kept under the traditional fixed deposit will grow to Rs 11,449 at 7 per cent in two years while the same amount put in ‘Auto Sweep’ deposit will grow to Rs 11,400 at the same rate.
Are customers aware of this facility?
Auto Sweep facility is available in most of the commercial banks, but under different names, as given in the Table. But not all customers are aware of it. While some banks claim to inform their customers about the special schemes as and when they are launched, other banks prefer to keep mum over it. Why are banks so reluctant about this facility? The reason lies in their CASA (Current Account/Savings Account) ratio which helps banks reduce their cost of deposits, and in turn increases their net interest income. Higher the CASA ratio, higher will be the net interest income.
Table: Banks Providing Auto Sweep Facility Banks Sweep Facility Minimum Threshold Limit (Rs) ICICI Bank Auto Sweep 5,000 SBI Saving Plus 5,000 HDFC Bank Sweep-in 50,000 IDBI Bank Sweep-in 50,000 Kotak Bank Sweep-in 50,000 DCB Auto Sweep 25,000 Dena Bank Dena Sevifix 25,000 Corporation Bank CorpClassic 25,000 OBC Flexi Fixed Deposit 5,000 Yes Bank Smart Saver 25,000 Bank of India Saving Plus 25,000 Andhra Bank Freedom Saving 5,000 Source: Bank websites * The list contains only major banks.
The idea is simple. With Auto Sweep facility, investors get the best of both worlds – they enjoy the liquidity of savings account and at the same time earn extra return from fixed deposit account. This is the best way to channelise and utilise one’s unused savings, especially meant for salaried people who often end up with some idle money in their savings accounts. So, if your savings accounts are still not activated for the auto sweep facility, ask your bank officials to enable it for the threshold limit as desired by you or to the bank’s minimum threshold limit.
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10 Responses to “‘Auto Sweep’ facility: Have you enabled it?”
Very informative. But I have a Citibank account. Does citibank has the Auto sweep facility???
kumar shivam said on July 27th, 2010 at 7:19 pm
i have allahabad bank account. Does allahabad bank has the auto sweep facility
Mandar said on July 31st, 2010 at 12:41 pm
Extremely useful information thanks for this post
subhash said on October 3rd, 2010 at 11:15 am
i opened sbi plus account it facilitates with auto sweep but in the case of money drawing more than available in savings account it penalizes 1% hence giving less interest rate than in savings account.
achhru said on November 10th, 2010 at 2:20 pm
i have a sweap account in sbi. what is rate of interest.
Jatinder said on March 5th, 2011 at 11:01 pm
The bank officials of ICICI bank of branch of sector 9 Chandigarh branch is having no knowledge of Auto Sweep Facility or they are misguiding the public. I visited the branch to avail facility on my SB account but the bank official said that ICICI bank has no such facility. If the high official of bank desire to know the names of that uneducated employees I will give the names.
manish r. joshi said on March 14th, 2011 at 12:18 pm
i want to take this facility what i have to do?
Ashish Rajguru said on July 17th, 2011 at 10:23 pm
What is the difference between auto-sweep facility & premium auto-sweep facility ? How much amount to to deposit if avail premium auto-sweep facility.?
visali said on October 17th, 2011 at 4:39 pm
how to convert the normal account balance to sweep account balance
Anjali said on November 30th, 2011 at 2:38 pm
In ICICI and SBI, the minimum threshold limit is increased to Rs.10,000 and in OBC it is Rs 25,000