Recently, Kotak Mahindra Bank introduced its ActivMoney feature, which allows clients to benefit from interest rates similar to fixed deposits (FDs) of up to 7% annually and the flexibility to access their money whenever they want from the connected savings account. Many other banks, including Axis Bank, HDFC Bank, ICICI Bank, and IndusInd Bank, provide this auto sweep option.
It enables savings account holders to maintain the liquidity provided by a savings account while earning higher interest than is offered on FDs. Customers of some banks, including Kotak Mahindra Bank and Jana Small Finance Bank have access to this service.
The excess funds are automatically used to open FDs for a predetermined tenure as soon as the balance in the savings or current account exceeds a predetermined threshold (also known as sweep-out). Similarly, the linked FD(s) is automatically terminated, and the proceeds are paid to the savings account to make up the shortfall (also known as sweep-in) when the balance of the savings account drops below a predetermined threshold. The sweep-out threshold limit varies. For instance, the minimum balance necessary for a savings account at Axis Bank and Kotak Mahindra Bank is Rs. 25,000, at ICICI Bank it is Rs. 15,000, and at IndusInd Bank, it is Rs. 20,000.
Banks offering Auto Sweep Facility
|Bank Name||Product Name||FD Tenure||Threshold amount in savings account to activate sweep-out|
|Axis Bank||Auto Fixed Deposit||6 Months to 5 Years||Rs. 25000|
|HDFC Bank||Saving Max Account||1 Year 1 Day (for all three types of account)||Rs. 1 Lakh|
|Women’s Savings Account||Rs. 75000|
|Kid’s Advantage Account||Rs. 25000|
|ICICI Bank||Money Multiplier FD||1 Year or tenure specified by depositor, whichever is higher||Rs. 15000|
|Induslnd Bank||Indus Multiplier Max Savings Account||30 Days to 2 Years||Rs. 20000|
|Kotak Mahindra Bank||ActivMoney||180 Days||Rs. 25000|
The duration of FDs and interest rates differ depending on the bank. For instance, Kotak’s ActivMoney offers the option to sweep funds over a certain amount from your savings account and deposit them into an FD account for 180 days. If there is not enough money in your account, the FD will be prematurely terminated without incurring early withdrawal penalties, and the necessary sum will send to your account. In contrast to the typical 3.5 percent annual interest rate for a regular savings account, this facility will allow depositors to earn interest on their deposits up to a maximum of 7 percent annually.
Let’s say you choose the ActivMoney option, and have a Kotak Edge Savings Account. Your savings account’s default ActivMoney barrier is Rs 25,000. Now, if the balance in your savings account exceeds Rs 25,000, the excess money will be automatically moved in multiples of Rs 10,000 to a 180-day fixed-rate deposit. On the balance that has been transferred to the FD, you will thereafter earn the current FD rate. This FD is linked to your savings account, so you can withdraw money whenever you want without incurring fees.
If you don’t have enough money in your savings account, your FD will automatically be debited to cover the shortfall. Similar functionality is offered by other banks as well, although as was already noted, there will be differences in the threshold limit, FD tenure, and interest rate.
You just need to give your permission once for a specific savings account to your bank if you want to invest in an auto sweep FD. The excess money that is still left over after reaching the threshold is then automatically turned into FD. As a consequence, you will get better returns and won’t have to go to the bank branch or submit an online application for an FD each time your savings account has excess funds.
If you want a standard FD, you will need to ask your bank each time you want to convert the excess money in your savings account to an FD.
Because sweep-in and sweep-out occur at regular times, the auto sweep account will generate numerous interest earnings. For tax reasons, you must properly reconcile the account statement.
According to Section 80TTA, the interest on savings accounts is exempted up to Rs 10,000. Interest earned on FDs held under sweep-in accounts is taxed at the appropriate income tax rate. If the interest on an FD reaches Rs 10,000 in a year, TDS, or tax deducted at source, at a rate of 10%, is deducted. It is significant that the amount of tax you owe on interest from FDs will depend on your income tax bracket. For instance, you are subject to a 30 percent tax rate if your income exceeds Rs 10 lakh.
The type of depositor who would benefit most from an auto sweep account would take low risks. Businesses that do not receive interest on their bank current accounts can also benefit from it. If you have limited money, you might opt to create an account with a bank that offers auto-sweep savings accounts with lower threshold restrictions.
If you consistently have extra money in your savings account at the end of the month after paying your bills, you might benefit from setting up an auto sweep account.