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8% Interest in Savings Account - Auto Sweep Facility Account & Flexi Fixed Deposit (FFD) - YouTube
Channel: Asset Yogi
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Please press the bell icon while subscribing asset yogi channel
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Namaskar, my name is Mukul and you all are welcome in Asset Yogi
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Where we do not lock the knowledge of finance but unlock it instead
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In today's video, I am going to discuss with you an important facility
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Through which you can earn interest rates of FD in your savings or current account of your company
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Many times we have accounts in which money is lying just like that
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on top of that, we keep earning a normal interest rate of saving i.e. 3-4% only
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But the rates of FD which are there are up to 6-7% or 8%
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So you get the interest rate of FD on your extra money which you are not using
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you can earn that easily
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We call this auto sweep account
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So in this video, we will talk about auto sweep account and Flexi fixed deposit
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Also, we will also see what is the difference between these two
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And what are their important features?
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So you should watch this video from start to end
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By which you get to know what rate of interest is there in which type of account
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And what are their limitations, it should also be known
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So let's go straight to the blackboard
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So let's talk about the auto sweep account in this video
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And in that how do you get a better interest rate in your savings account
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And also we will talk about Flexi Fixed Deposit, both are not the same
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We will also see what is the difference between the two
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First of all, let's talk about the auto sweep account
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So in this, you get the benefits of both the savings account as well as the FD
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So basically you get the interest rate of the fixed deposit in the savings account
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Because the interest rate of the fixed deposit is much higher than the interest rate of the savings account
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this facility is also available on your current account if you have a current account of any company
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So even on your current account, you can earn an interest rate of a fixed deposit
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So now let's see how it works
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so the return of FD is beyond minimum account in savings and current account
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This means you have to keep a minimum account in your savings account or in the current account
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And this minimum threshold limit is different for every bank
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As I said before you get liquidity, Savings Bank benefit is also there
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suppose you want to withdraw money or you have to put it, your salary comes, you have some expenses
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So if you want some minimum money to spend on daily basis, then you can set your own limit
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And the liquidity you have, as much as you keep spending money or keep getting it
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So you get the benefit of that, and you also get FD鈥檚 return
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So within this, a threshold limit is set
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that how much minimum amount will you keep in the savings account
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Whatever money comes after that, it will be fully converted into FD
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So if I will explain this by example
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So suppose you have a limit of 50,000 in your savings bank account, Right
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You decide it yourself
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It is possible that according to the bank, it is a limit of 25,000
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The bank will say that you have to keep this minimum amount of money
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but you can also increase your threshold above this
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So you would say that I want to keep my threshold limit of 50,000
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whatever money you have above that, you transfer it to FD
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So suppose after 50,000, 10,000 Rs came into your account
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So they will be automatically converted in FD
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And this 10,000 Rs will go in the FD
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So if your savings bank account was getting an interest rate of 3.5%
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And consider getting 6% inside FD
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So on this 10,000, you will start getting an interest rate of 6%
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In this way, you will get more money, suppose you are saving some money every month
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Then again these 10,000 Rs will be transferred automatically and you will get an interest rate of 6%.
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So we call this process a sweep, can either say sweep or can also say sweep out
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Sweep out means that money is being withdrawn from the savings bank account and going into FD
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So this is the process
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after that the minimum threshold limit, as I told you
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the bank sets its minimum threshold limit
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Every bank says that you should have this much money in your savings account
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only after that, we will transfer inside the FD
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This is the range it can be from 25,000 to 1,00,000 depending on bank to bank
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And what happens to the minimum FD amount may be different for every bank
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For example, some say 5000, some say 10,000, some may say 20,000
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May be more than this, one may say 50,000, right
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So in general most of the banks make 5000 to 10,000 tranches
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As you collect for example 10,000 Rs, so that money will gradually shift in FD
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So this means that if there are 2000 Rupees, then 2000 Rupees will not shift
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10,000 rupees will be there then only it shifts
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After that, the minimum maturity period of an FD is also decided
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Most of the banks define this as well
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Some bank says that there is a minimum maturity period of 15 days, we'll not give interest before that
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And it may be 45 days in some banks, it may be 30 days
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But on average it is between 15 to 30 days
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Then the bank also decides the maximum maturity period of FD
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What is the maximum number of years for which we took FD?
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So maximum banks decide it till 1 year and some banks give it for 5 years also
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So this is the complete sweep out process
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Now let us see what is reverse sweep
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What is the meaning of reverse sweep that if I take the same example as before
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Suppose you had 50,000 Rs in Savings Bank and let's say you had 10,000 Rupees in FD
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But now you get a requirement of 60,000 Rs all of a sudden, Right
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So what will happen, that your FD money will
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Let me explain with another example
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Let's say 55,000, let's remove 60,000, let's understand in a little way
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So in this, the bank says that we can withdraw the minimum limit of 1000 rupees from the FD account
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So what will happen, 5000 rupees will be withdrawn from the FD
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and you will get this saving account鈥檚 money first
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So 50,000 will be available from this and 5000 rupees will come out of FD, Right
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So we call it reverse sweep
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So it's a reverse sweep but it has a shortcoming that
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So this incurs a 1% penalty on you
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So whatever the interest rate of the FD would be, suppose the interest rate of this FD was 6%
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So on this, the net effective you will get on this 5000, you will get only 5%
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And will get the same number of days for which the FD was there, Right
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So now we see its losses, what happens and what are its shortcomings
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So we talk about how this money is transferred
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There are 2 methods one is the LIFO method last in first out
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Second is your FIFO method first in first out
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So this means we will understand this from the example
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then suppose you had a FD on 1 jan, Right
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and FD2 on 1 Feb around
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And you have the requirement of money on 10th March
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Lets assume it 10 feb
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If you get the requirement on 10th Feb, then your last FD inside last in first out will come out first
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So in this, your FD of 1 Feb will come out first
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In First in first out whichever is the first FD, Right, so it'll come out first
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So FD of last in first out is a bit better because
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A small-time period FD, As you see, you have only 10 days FD right
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So on this, you will not lose much interest
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And this is the first FD, it always has more interest rate in the long term
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So on this, you will get that benefit
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So last in first out is a bit better because your old FD will not go away, you will get a better interest rate
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So the last FD will break, you will not have much loss
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And the second is a Pre closure penalty
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It's like I talk to you that many banks impose a penalty of 1%
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So this is a 1% FD breaking penalty if you take it before the maturity period
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Suppose if the FD was of 90 days
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If you have planned a 90 days FD
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And if you break it within 30 days, then it will incur a penalty of 1%.
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So whatever was the interest rate of 90 days FD, 1% of it will be minus
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Now let us see how this interest is actually loss
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We will understand this by example
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See as I told you that the interest rate of the low maturity period is always low
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So here I have shown you the table of the latest ICICI bank FD鈥檚 interest rates
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so see this
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The interest rate from 7 days to 14 days is very less, 4% only
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So in today's date, if I talk about the interest rate of savings account in the current
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if we talk about ICICI, then I am getting only 3.5%, Right
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4.25% is available from 15 days to 29 days, Right
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So if we talk about Pre Closure Penalty
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then this Pre Closure Penalty reduces your interest rate further, Right
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And this interest rate can go below your savings bank interest rates in some cases
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So lets take an example
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Suppose you have an FD of 29 days, OK, let's take an example on this
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So in 29 days, you were getting an interest rate of 4.25%, Right
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So say out of 4.25 you get 1% in penalty then it will be, 4.25% minus 1%
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This is your 3.25%, Right
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So it's falling short for you, then the interest rate of the savings bank account
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So you should check it once whether you want to do FD for a short time period or for the long time-period
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So this is what I suggest
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when you don't need money for 3-6 months then you go to Auto Sweep Account
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By which you will get better interest rate
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See this, from 61 days to 90 days all are ranging from 6 to 6.25% interest rates
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And in more than 1 year it is going up to 6.6% Right
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So the real profit you have is in above 3 months
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So you try to get a longer time-period FD then it is better
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And you must plan for at least 3 to 6 months
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After that, some banks give simple interest in an auto sweep account
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You always get compound interest within normal FD
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So check it once that are you getting simple interest in auto sweep account or compound interest
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And lastly this income is taxable
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And in fact, normal FD is also taxable which is interest income
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And all the money lying in the savings account and FD is taxable in your auto sweep account
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and generally TDS is also deductible on it of 10%
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So this is auto sweep account
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Now let us quickly see what is Flexi Fixed Deposit
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It is similar to an auto sweep account but a little different
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So what happens in that your FD account is already open separately
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And you link it with your savings bank account
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If there is less money inside the savings bank account
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assume that you want to withdraw some money
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So from the amount in your FD, a little bit is given inside the savings bank account
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So what is in this, suppose you had 10,000 Rs lying inside your FD
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And linked your account of a savings bank with it and suppose you had 30,000 Rs in it
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But suppose you got a requirement of 35,000
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So, in that case, this 5000 rupees will be withdrawn from your FD
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and go to a savings account and you can withdraw from it
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So the advantage of this is that your entire FD will not break
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This 10,000 Rs will not have any penalty, Whatever penalty will be there, it will be charged 1% on 5000.
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Your complete FD will not break
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and its long term tenure will continue as it is
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And according to the amount of money lying in it, interest will continue to be received
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But inside the auto sweep account, we saw that
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there is a threshold limit any money above that will automatically go inside FD
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Inside this, you will have to do the FD yourself, you will have to go to the bank separately
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to get the FD done or you will have to do it online.
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It is slightly different from auto sweep account
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So hopefully after watching this video
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you must have come to know the difference between Auto sweep account and Flexi fixed Deposite
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And if you want a higher interest rate with your savings bank account
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then you go with auto sweep account
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So that's all in this video
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If you want to share your thoughts related to this video or related to this channel
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then you can comment below
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In fact, you can also suggest any topic for future videos
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If you have also liked this video, then please like and share it
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I keep on sharing informative finance-related videos like this almost daily
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So see you in the next video till then keep learning, keep earning and be happy
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