Some people choose autosweep accounts to build emergency funds. Moreover, since every time money goes from the savings account an FD is created, by the end of the year, you may end up with many FDs. The bank account statement can be complicated,' said Vishal Dhawan, founder and chief executive officer, Plan Ahead Wealth Advisors. “A disadvantage with autosweep is that one needs to reconcile accounts to be sure that interests have been paid correctly and all autosweeps are rightly accounted for.

The autosweep feature also means different interests earned, which matters for taxation. High thresholds may not suit small savers. Try to choose a bank that has lower limits on the autosweep savings account. “IndusInd Bank Ltd does not charge penalty on the FD that is broken prematurely,' said Ritesh Raj Saxena, head–savings, digital and payments business, IndusInd Bank. Some banks don’t charge premature closure penalties for autosweep accounts. “One should leave the FDs for a tenure of at least 3-6 months in an autosweep facility to avoid deposit termination charges for premature closure and lose interest,' said Anil Rego, founder and chief executive officer, Right Horizons, a financial planning firm. To maximise returns, refrain from dipping into the FDs for a few months from the time they are created. Subtract the penalty from the interest rate to find out whether the facility is useful. Post-tax, this return would be 2% for those in the highest tax bracket.Ĭheck the frequency of your withdrawals and the bank’s deposit rates for the relevant period. Even if you were to leave the autosweep as it is and earn 8% per annum on a one-year FD, the real return would be 3%, assuming an inflation of 5% per annum. If you are considering autosweep as an investment tool, do the math first to understand the real returns. “Autosweep accounts are for people who usually have big balances (more than twice the minimum required), and few withdrawals a month,' said Dhakan. So, if there is little chance of having extra money at the end of the month, then this facility is not useful. The purpose of an autosweep facility is to allow excess money in a savings account to earn better returns. This is because under Lifo, the last FD doesn’t earn any interest as it is not allowed to remain with the bank for enough time. However, for frequent withdrawals, Fifo might be better, especially if withdrawals are as frequent as once in 10-15 days. Mostly, Lifo leads to better returns than Fifo as the first FD swept in is allowed to earn interest for longer. In Lifo, the last FD booked is broken for withdrawals, and in Fifo, the first FD created with swept-in money is used for withdrawals. This changes the way you earn returns on the autosweep account. One is the Last In First Out (Lifo) method and another is First In First Out (Fifo) method. The sweeps between the savings account and the FD happen in two ways. So, after penalty of 0.5% for premature withdrawal, the rate becomes only 5% or 3.75%. ICICI Bank Ltd gives interest of 5.5% for 30-45-days FDs and 4.25% for 15-29-days FDs. For instance, Axis Bank Ltd offers only 3.5% for deposits up to 30 days. So, only if you maintain the FD for at least 30 days would it earn interest higher than a savings account. So, the total interest earned would ultimately be much lower than if you had kept the money in just the savings account.Īlso, most banks offer low interest on FDs with tenors of up to 30 days. If your 25 days FD interest rate was 3.5%, postpenalty, you may get only 2.5%. Second, is that premature withdrawal penalty-usually 0.5-1% of interest payable-reduces returns. This means that if the FD’s tenor was a year, but money was withdrawn from it within, say, 25 days, then the interest applicable for 25 days only would be considered. First is that the interest is calculated based on the number of days the FD was with the bank. In such cases, the investor loses even the nominal interest she would have otherwise earned on the same deposits,' said Hiren Dhakan, associate fund manager, Bonanza Portfolio, brokerage and investment advisory.Įven if you were to put over a lakh in the autosweep savings account at the start of every month, frequent withdrawals will mean lower returns than a normal savings account.

If the investor liquidates the FD prematurely, the bank deducts some penalty from the interest or seizes the interest totally. “Every bank autosweeps in FDs with a certain maturity limit, say one year. But frequent withdrawals from the FD means loss of interest. The main attraction of autosweep is that excess money in a savings account can earn FD-like interest, which is higher than savings account interest.

Auto sweep bank account