What makes Auto Sweep account the best Savings account?

What happens when you need higher returns than your savings account, but also enjoy the insane liquidity that your saving bank provides. 

The answer is simple you convert your boring savings account to an auto sweep account.

What exactly is an Auto Sweep account?

Auto Sweep account has combined benefits of Saving Account and Fixed deposit. 

You can earn FD returns beyond the minimum amount in a savings account. You get to enjoy the liquidity of savings account as mentioned earlier.

Now you need to reach out to your bank and ask them to convert your savings account to an auto sweep account. 

They will tell you the minimum threshold Limit which can be from Rs. 25,000 to Rs. 1,00,000. You can increase your threshold limit.

What is the role of the threshold limit?

Let’s assume that your threshold limit is Rs 30,000 which means that any amount above Rupees 30,000 will be converted into a fixed deposit. 

This can be of 5000 or 10,000 range FD meaning. 33,000 which is 3000 above your Threshold will not be converted into an FD but 5,000 from your 35,000 will be converted.

The downside of the Auto Sweep account?

The downside is every time you choose to break the FD which will happen only after you break the threshold limit then a penalty will be charged.

0.5-1% penalty will be charged now because of this penality there can be cases when your returns are lower than the 3.5%. So be aware of that.

What are the ways through which money will be transferred from FD to your savings account?

There are two ways through which your money will be transferred from FD to your savings account.

1. LIFO: Last In First Out: Last FD will be broken first
2. FIFO: First In First Out: First FD will be broken first

So, ask your bank what procedure will take place before converting your savings account to an auto sweep account and LIFO is better because the more time an FD gets the more returns it gets.

Will I be taxed for the returns I earn through the Auto sweep account?

Yes, both auto sweep account and Fixed Deposit returns are taxable.

How are the returns calculated?

One more downside is that some banks will give you simple interest on an Auto sweep account and not compound interest. 

Normal FDs have compound interest. So do clarify this with your bank before you convert your savings account to an auto sweep account.

What is Flexi Fixed Deposit?

One more cool concept is Flexi Fixed Deposit where you choose to link your FD to your savings account. In case you have a shortage of Funds in the Savings account, the amount from FD will be transferred to your savings account. This way you don’t have to break the complete FD.

Final Thoughts?

Well, I believe this is an awesome feature for people who need money liquidity in your savings bank. You need to understand your goals and make sure you adjust your threshold limit accordingly.

Source: This article is written by me on www.rustymen.com