When you earn enough to be able to save something at the end of every month, you would like to invest them in an avenue that gives you the flexibility to access your savings during contingencies and yet give handsome returns when it is idle in your bank account.
Typically any bank gives a mere 4.5 per cent interest per annum on savings account. And if the money is put into a fixed deposit account it is not at your disposal. So what you need is an amalgamation of the features of a savings-current account and a fixed deposit account.
A sweep-in account, as it is called by HDFC Bank, could fit your bill. It works like this: With no minimum balance requirement, one has to keep a fixed deposit of Rs 25,000. When you are in need of cash, the bank can just transfer or 'sweep' in funds to the savings account.
Here it is worth a mention that non-maintenance of the minimum FD amount will attract a penal charge of Rs 150 per quarter. Deposits are held in units of Re 1, which gives one the flexibility to withdraw the exact amount needed without losing on interest on the balance in the fixed account, which is a clean 2 per cent more than what your savings account has to offer.
There are various modifications to a sweep-in account catering to different customers in different situations.
Last month, Kotak Mahindra Bank introduced a variant of the sweep-in account. If the balance tops Rs 150,000, the excess gets transferred into Kotak's liquid mutual fund.
Another is an Auto Sweep account of ICICI Bank. Here the account holder decides the minimum amount to be kept in his/her savings account. Any excess over it will automatically get transferred to the bank's Quantum fixed deposit account.
For example, if one instructs the bank to keep Rs 10,000 as the minimum balance. All money above Rs 10,000 will be transferred to the Quantum fixed deposit account giving one the advantage of a higher interest rates. The minimum period under this facility will be of 30 days.
ICICI Bank offers another option called a "reverse sweep account". When a customer issues a cheque or wants to withdraw an amount which is more than what is in his/her savings account, the bank will just break the fixed deposit account in units of Rs 1,000 or in multiples thereof and transfer a part of the fixed deposit into the savings account to meet the shortfall.