Why should you transfer your excess savings account balance to sweep-in FDs?

Most banks in India offer around 2.5% annual interest on the balance you keep in your savings account.

However, for specific balance ranges, under a structured or tiered system of interest rates, they may offer a higher interest rate only on the portion of the balance that falls within a particular slab.

As a general rule, it is advisable to not keep large, idle balance in a savings account. Ideally, you should instead maintain only three to six months of expenses, along with some reasonable buffer for emergencies.

If you are aiming for high liquidity, banks offer a sweep-in fixed deposit facility, through which you can link your savings account to a sweep-in FD. Here, your money, apart from earning the regular savings account interest, will also earn a higher return on the FD amount.

Once you set a threshold value, any amount in your savings account above that limit is automatically transferred to a sweep-in FD, which pays a relatively higher return while maintaining the same liquidity.

As an additional feature, partial withdrawals are allowed. Also, if the balance in your savings account falls below the specified threshold, the bank may break the FD units to restore the required balance (this may not attract premature withdrawal charges in some cases).

Suppose you maintain ₹2 lakh in your savings account. It will earn you barely ₹6,000 in annual interest. If you transfer the same amount to a sweep-in FD, it can fetch you up to ₹16,000 per year, more than doubling your earnings.

In conclusion, if you are looking for high liquidity, avoid keeping large balances in your savings account. Instead, consider linking it to your bank’s sweep-in deposit facility to earn a higher return.