What is an Auto Sweep in and out Facility?

What is an Auto Sweep Facility?
 People have money lying in their savings account earning a mere 2.9% annual rate of interest. Products offered by the banks to grow money, is auto-sweep account.
 It gives the ease of withdrawing money and a higher rate of interest on fixed deposits tied to the savings bank account
 Auto sweep is a feature that connects your savings account to a fixed deposit account,
 The auto sweep feature, as the name implies, “sweeps” excess funds from savings into a fixed deposit account.
 You must connect these two accounts and establish a monetary limit.
 A threshold limit is an amount you want to maintain in your savings account.
 Anytime your balance exceeds this threshold limit, the excess is deposited into your FD account - a procedure known as a ‘sweep-in’. Additionally, each of these accounts receives its interest earnings of FD.
 However, transferring funds into the FD does not result in losing the amount’s liquidity.
 When you request money from your account exceeding your threshold limit, the requested amount will be transferred from your FD account to your online savings account.
 This process is referred to as a ‘reverse-sweep’ or Sweep Out.
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 Benefits of Auto Sweep Facility
1. Liquidity
The auto sweep facility enables one to have a lot of liquidity and ensures a good return on their funds. For instance, assume your current sweep account is getting low on funds, and you have an EMI or a cheque payment due. To ensure timely payment, your bank will automatically transfer the funds from the earlier invested amount to your account, thus saving time and effort.
2. Flexibility
Banks often let you choose the FD’s duration, maturity period, and threshold amount. But most FDs come with a minimum holding period and early withdrawal could result in interest loss.
3. Linking Multiple Deposits
To ensure you never experience a liquidity crunch, you can link multiple deposits to the account for fixed deposit sweep-in. Banks typically follow the “Last in First Out” principle in these circumstances, meaning that money will be transferred to your account from the most recent deposit linked with the sweep-in facility when a sweep-in is triggered.
4. Separate Corpus
The sweep-in FD facility helps you build a corpus that you can access in an emergency without liquidating any other assets and offers a higher interest rate.
Disadvantages of Auto Sweep Account
1. Penalties
Auto sweep accounts charge penalties for premature withdrawal of funds. Therefore, you cannot withdraw money from this account until maturity. Else, you must pay the penalty.
Terms Associated with Auto Sweep Account
1. FD Tenure
It is the term or the period for which the fixed deposit was created. As part of the auto sweep facility, most banks offer a 1-year deposit to their customers. However, some banks also offer fixed deposits with flexible tenure.
2. LIFO or FIFO
To maintain the specified minimum balance in your account with your day-to-day credits and debits, the bank may liquidate FD units using either the First In First Out (FIFO) method or
the Last In First Out (LIFO) method. In the LIFO system, the bank will liquidate the FD units that you invested most recently (or last), and the amount will be deposited into your account. Under the FIFO system, the FD units that were created the earliest (or first) will be liquidated by the bank.
3. Premature-closure Penalty
This refers to the penalty for withdrawing money out of an FD before it has matured.
Banks with Auto Sweep Facility
Canara Bank - Sweep in Sweep out Account
Bank of Maharashtra- Mixie Deposit Scheme
Bank of India- BOI Savings Plus Scheme
Kotak Bank Sweep in Bank Account
ICICI- Money Multiplier Account
Axis Bank- En cash 24
Allahabad Bank- Flexi Fix Deposit
HDFC Bank- Sweep in Facility
Kotak Bank Sweep in Bank Account
Tax Implications of on Auto Sweep Facility
The auto sweep feature also results in varied interest earnings, which has an impact on taxes. To ensure that interest has been paid correctly and that all auto sweeps are correctly accounted for, accounts must be reconciled.
The bank statement can be complicated.
Differences Between an FD and Auto Sweep Account
Convenience is both the key benefit and the primary distinction between a regular and an auto-sweep FD.
Final Word
Auto sweep facility is one of the best features to help maintain a healthy balance between your savings and investments. With this feature, you can be assured about the destiny of your surplus money without visiting the bank at regular intervals. The best use of this auto-sweep facility is when your savings account has stagnant excess deposits to avoid penalties for premature withdrawal.