All of us keep our hard earned money in locker or savings bank account for any emergency that may arise in nearby future. This ensures liquidity of money but at the same time rate of interest @ 3.75 % p.a. (if your bank doesn’t offer 6% – 7% interest on savings account) that we earn on the money lying in savings bank account is too low in this inflation period and may not be sufficient for our prolonged growth.
So just think how it would be if we can maintain liquidity of our funds and still at the same time earn high interest on money lying in SB account. You can have below two options to achieve the rate of interest at higher side.
- Deposit in FD
You can open Fixed Deposit with any bank, earning interest 6.75% (updated in Nov 2016).Well, you already know this option. Your money will be locked for the tenure of FD and you may need this money anytime. You don’t want your money to be locked in your bank, right?
- Sweep in Facility
What exactly happens with this is that you need to set some amount as threshold limit, above which any amount credit to your account will automatically move to a fixed deposit and yield a higher rate of interest for the tenure it is with the bank. If you have encashed cheque for any of your urgent needs, no issues your deposit will care for this.
Suppose, you have set a threshold limit of Rs. 10,000 in your savings bank account and have deposited Rs. 50,000 in the account. Now, that Rs. 10,000 will remain in your savings bank account and Rs. 40,000 will automatically convert into fixed deposit which will earn you a higher rate of interest of about 8-9% per annum
This shows you will earn savings bank account interest of 4% on Rs. 10,000 and 8-9% returns on Rs. 40,000 so you have the benefit of enjoying an additional rate of interest of about 4-5% on Rs. 40,000 and at the same time you are also able to maintain the liquidity for any emergency that may arise. If you are not making use of this extremely good option, ultimately you would lose this money which you could have grown.
3: Manual sweep-in facility with regular Fixed Deposit
You can avail sweep-in option when opening regular FD. All banks provide this facility. Some banks allow you to convert your regular FD into sweep-in accounts, like HDFC, ICICI.
Some disadvantages associated with it are as under:
- You will be penalized on interest if you are utilizing money over the limit. They will just charge small 0.05 to 0.75%, but 7.25% is still better than 6.1%.
- To open and break fixed deposits in case of manual sweep-in is a cumbersome process. In order to avoid the hassle and rush just go for auto sweep-in FDs.
- Choose such banks which are having minimum threshold limits.
Sweep in facility is the best way to park your contingency funds as it is automatic. Savings account interest rates can be made high-interest savings accounts if we choose wisely. Select threshold limit in such a way that it will be around 2 months expenses to avoid sweep-out penalty. Now go out this Saturday and avail these options in order to enjoy benefits on the hard earned money. You have worked a way long full month to earn money, let money now work for you.