5 FAQs about a sweep account

What is a sweep account?
This is an innovative deposit option that allows you the convenience of a bank account without compromising on the interest that your money earns compared with a long-term investment vehicle like a fixed deposit (FD). Most leading banks in the country, including public sector banks, offer this facility, but the name may vary. So, Syndicate Bank calls it the premium savings account, at HDFC Bank, it’s called the sweep-in facility, while at Standard Chartered Bank it’s the 2-in-1 account.

How does it work?
While some banks require you to open a bank account, which is then linked to an FD account, others reverse the process and offer a sweep facility in lieu of overdrafts. In case of the latter, as soon as you open an FD, you gain access to a savings or a current account which, more often than not, has no minimum balance requirement. Should the balance in your account be insufficient to meet the requirement of a debit instruction received by the bank, funds from your FD will be automatically swept into your account in predetermined blocks that vary from Re 1 to Rs 1,000, depending on the bank. At the same time, you only lose interest on the block withdrawn.

On the other hand, Syndicate Bank and Bank of Baroda, among others, ask you to open a savings account first. On any day, if your account holds more money than is required as per the minimum balance criterion, the excess funds are automatically swept to the linked FD in predetermined units, ranging from Rs 1,000 to Rs 5,000.

What is the advantage of this product?
For current account-holders, especially small businesses, a sweep account is a better option than taking an overdraft on an FD. Not only can you withdraw the exact amount that you need—in case of an overdraft, there is a minimum amount stipulation which may be far more than the money you need—but you can make up for the interest you lose by making further deposits in the FD account. At the same time, you don’t need to pay the additional fee and charges that an overdraft entails.

This facility also works better than a regular savings account. The money parked in the latter earns just 3.5% interest, but in a sweep account, the excess money swept into the FD account will earn at least double the interest. Better still, most banks allow you to link multiple FDs to your account. ICICI Bank has recently introduced a pure online account called B2 linked with this facility.

What are the applicable eligibility criteria?
You either have to open a premium account, where the minimum average monthly/quarterly balance is between Rs 25,000 and Rs 1 lakh, or take an FD of at least Rs 25,000.

Who stands to gain the most from this facility?
If you are sitting on idle cash reserves—say, you are looking for investment options a few months down the line—a sweep account can help you manage money more efficiently.