Most banks have cut savings bank interest rates to 3.5% from 4% in recent times. Savings account interest rates are expected to be even lower in the future. In such a scenario, you may consider sweep-in FDs at your bank. This is called a 2-in-1 account, money multiplier and so on. These deposits offer higher returns close to around 6.75% in comparison to savings accounts and also help you maintain the same liquidity and flexibility which you have with your savings bank account. Sweep-in FDs can be opened via net banking or by visiting your nearest branch.
Any amount above the basic threshold limit in the account will be converted into a Fixed Deposit under this plan. For example, if the threshold limit is Rs. 10,000 and you have saved Rs. 1, 60,000 in your account, then Rs. 1, 50,000 will be shifted out and converted into a Fixed Deposit. In case you do not have sufficient funds in your account, the deficit will be made up by withdrawing from the FD. For example, suppose that you have Rs. 1,00,000 in your savings account and the minimum threshold is Rs. 30,000. In this case, the remaining Rs. 70,000 will automatically be converted into an FD. Now, suppose you have given a cheque for Rs. 40,000 then the deficit amount will be recovered from this FD.
Keep the threshold limit in mind which actually varies between Rs. 25,000 and Rs. 1 lakh in most cases. Lower threshold limits will help you get higher returns on your money. Consider the minimum mandatory account limit. Also consider the FD tenure although these usually have 1 year as a fixed tenure. There are penalties charged for breaking the FD prior to the conclusion of the tenure. Consider the minimum tenure before opting for a sweep-in FD and if you do not keep your money for a minimum period, the interest offered by the bank will be lower.
Check the interest rates which may be in sync with regular FD rates. However, increased interest rates may not be offered to senior citizens in this regard. FD withdrawals can be executed in various multiples. Some banks have Re.1 while others may have Rs. 5,000 or Rs. 1,000 as multiples. The lower your multiple is, the higher your savings will be. Check whether there are withdrawals offered via cheques, your branch and ATMs. If you frequently withdraw from your FD, you will lose on interest income. Also, keep in mind that interest in a savings account will be exempted from taxes up to Rs. 10,000 annually. However, FD interest is taxable and will be added to your income for a year. Sweep-in FDs will thus be suitable for those in lower tax brackets than those in the highest tax bracket.