Sweep-In Account: Why Seniors Need To Be Careful When Choosing Them

• Sweep-in accounts automatically transfer money from savings account to FDs when the balance goes beyond a certain threshold.

• Premature withdrawals trigger penalties on interest that can significantly reduce effective returns.​

• Seniors lose the higher FD interest rates exclusive to their category, as sweep-in FDs apply uniform rates across all age groups.

Sweep-in is a facility provided by many banks to its accountholders to automatically transfer the funds from their account to fixed deposits (FDs) if the balance in their account exceeds the predetermined threshold limit. For instance, let's say you have set the threshold balance of Rs 50,000 in your bank account for the sweep-in facility. In such a situation, if your balance goes above Rs 50,000, then the excess balance in predefined multiples will be transferred to the FD account. The predefined multiple can be Rs 1,000, Rs 5,000, or as per the limit allowed by the bank.

A sweep-in account also allows the facility of automatic withdrawal if there is a withdrawal request over and above the available balance in the bank account. For instance, if the account balance is Rs 30,000 and a cheque is presented for withdrawal of Rs 40,000 where the minimum balance requirement is Rs 10,000, then Rs 20,000 will be withdrawn from the available balance and the remaining Rs 20,000 will be swept-out from your sweep-in FD.

The product may look good because it allows flexibility through auto FD and auto liquidity, but there are costs attached to it. So, let’s find out the things that you should be aware of if you plan to choose this product.

Lower Return On Premature Withdrawal Of Fund

An attractive feature that sweep-in FDs allow you is easy withdrawal when you require funds, but it comes at the cost of the return on your FD that is prematurely liquidated. The bank may charge a penalty of around 1 per cent on the applicable interest if the FD is withdrawn prematurely, and no interest if it is withdrawn within seven days. So, you should be careful while opting for the sweep-in option.

Senior Citizen FD Interest Rate Not Allowed

Interest on sweep-in FD is the same for all age groups. So, as a senior citizen you won't get the extra interest in a sweep-in FD that you would have got by investing in a regular senior citizen FD scheme. So, if you don't need your fund anytime soon, then it's better to invest directly in the senior citizen FD schemes.

Not Easy To Understand The Applicable Terms And Conditions

Sweep-in FDs are available in different names with different banks and their terms and conditions may vary significantly from one to the other bank. For instance, one bank may offer sweep-in FDs for 6 months, another may offer it for 1 year, and the threshold limit for auto sweep-in may also vary from bank to bank. 

Charges levied on premature withdrawal are also different among banks. This can be confusing for investors when choosing the appropriate sweep-in facility.

Sweep-in FDs can be considered by seniors who are sure that they won’t often disturb the FDs to avoid the penalty and loss of interest. However, they may still explore other options, such as investing in liquid funds, regular senior citizen FDs, and high interest savings accounts, among others.

The author is an independent financial journalist