New Delhi: Although the basic idea to keep money in your savings account is to get access to cash in case of urgency, one should also think of earning more interest on his savings account balance if the amount parked is substantial. Savings account holders can earn higher interest on savings account balance through ‘Sweep-in’ and ‘Sweep-out’ facilities.
Most of the banks in India offer this facility to their savings bank account customers. Under the sweep-out facility, surplus balance in your savings account (beyond a threshold, say Rs 10,000), is put in a fixed deposit. In case you withdraw more than the minimum balance required to be maintained in the account, the fixed deposit will be automatically dissolved and the amount will be transferred to your savings account. The same happens when balance in your savings account falls below the threshold amount.
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With the sweep-in and sweet-out facility, you can ensure that the cash lying in your savings account earns higher interest than the normal savings account interest, which is around 2-2.5% prevailing now. Biggest benefit of this facility is that you don’t have to track your idle funds on a regular basis and give instructions to the bank to create a term deposit out of your savings account balance. This process happens automatically.
You just have to give an instruction to your bank once to avail this facility. You have to mention the minimum amount (threshold amount) you want to maintain in your account. So that whenever more cash is accumulated in your account, the surplus amount beyond the threshold amount is transferred to a fixed deposit.
Interest calculation on the sweep-out fixed deposits will be calculated based on the tenor for which your money was parked in the FD. The interest applicable to the FD of similar tenor will be paid.
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For example, there is Rs 1 lakh balance in your savings account and your opt for sweep-in facility with a threshold amount of Rs 20,000. So Rs 80,000 will be transferred to a fixed deposit account. Suppose, you don’t withdraw from that Rs 80,000 for the next six months. In this case, you will get interest at savings account rate on the average daily balance of your savings account and at six-month FD rate on Rs 80,000.
Taxation
Worth mentioning here is that interest earned on a fixed deposit is taxed as per the tax slab of an individual. So those falling in the higher tax slab may not benefit much from this facility. However, interest earned on savings accounts up to Rs 10,000 in a financial year is allowed to be claimed as deduction under Section 80TTA of Income Tax Act. Any interest earned over this amount is taxable as per the tax slab of the individual.
