You are likely to have several banking activities on your to-do list in a day. The easiest way to complete all your banking activities is through your Bank Account. It facilities the safe keeping of your money and offers instant access to it. There are various types of Bank Accounts you can open; Savings Account is one of them. It is an interest-bearing account that allows you to take carry out your daily banking activities with maximum ease.
You can open Savings Account with any leading bank. You must primarily consider the interest rate offering, minimum balance requirement, and fees and charges for deciding on a bank for account opening. Savings Account is a fantastic financial instrument that offers the dual benefit of saving and interest earning. Auto-sweep facility is a concept you should adopt to optimise your Savings Account deposits.
Auto-Sweep facilities
When you have a significant sum in hand you naturally think of depositing it in your Savings Account for its safekeeping and to earn interest. This is a good practice. However, note that depositing money in your Savings Account will earn reasonable interest only. If you wish to earn higher interest, adopt the Auto-Sweep facility. You set an upper limit for your Savings Account deposits, called the threshold limit.
When your account balance exceeds the threshold limit, the surplus amount is channelled to your Fixed Deposit account. This allows you to earn a higher interest rate on your surplus, and maximise earnings. Note, that adopting the Auto-Sweep facility does not mean you will have to compromise on liquidity. You can access the surplus amount swept to the Fixed Deposit Account at any given time by requesting a reverse sweep.
Let’s say you hold a Savings Account with ‘Bank A’, and following are the specifications of calculations:
- Minimum balance requirement = Rs. 10,000
- Total deposit amount = Rs. 50,000
- Threshold limit = Rs. 30,000
- Surplus amount = Rs. 20,000
Considering the above calculations, the bank channels Rs. 20,000 to your Fixed Deposit Account.
Auto-Sweep interest calculations
The bank considers the surplus amount for interest calculation. The bank considers the deposits tenor as well. For instance, if you hold the deposit for one year the interest will be calculated accordingly. If you withdraw the deposit by opting for a reverse sweep the interest proportionate to the total time period, you held the deposit for will only be considered.
Generally, most banks require you to hold your deposit for a minimum of 30 days to earn interest. You can learn more about a bank’s interest calculation norms on their Banking App. Opt for auto-sweep for the sum you do not require. Furthermore, once you have opted for the auto-sweep facility do not opt for reverse sweep very frequently, as it negatively impacts your interest earnings.