You can reap the benefits of high-interest rates currently offered by banks on fixed deposits (FDs) for various tenors through the auto-sweep feature
You can activate the auto sweep feature to capitalise on the high-interest rates offered by various banks. Banks have raised their interest rates significantly in recent times as the Reserve Bank of India (RBI) increased its repo rate to curb the country’s spiraling high inflation.
The consumer price index (CPI), a measure of inflation, rose to 6.77 per cent YoY in October. To curb the rising prices, the Indian central bank has raised its rates several times this year.
Consequently, the high-interest rate environment has also offered an opportunity for people to earn interest income from their bank savings and fixed deposits (FDs).
The Repo rate is the interest rate at which the RBI lends money to commercial banks. Its current repo rate is 5.90 per cent.
While the interest rates for a regular savings account are somewhere around 2.75 per cent to 3 per cent, the fixed deposit rates have significantly gone up.
Here’s how you can activate the auto-sweep feature to earn higher interest rates on your FDs.
Auto-Sweep Feature
You can activate the auto sweep feature to capitalise on the high-interest rates offered by various banks. Banks have recently raised their interest rates as the Reserve Bank of India (RBI) increased its repo rate to curb the country's high inflation.
The consumer price index (CPI), a measure of inflation, rose to 6.77 per cent YoY in October. To curb the rising prices, the Indian central bank has raised its rates several times this year.
The Repo rate is the interest rate at which the RBI lends money to commercial banks. Its current repo rate is 5.90 per cent.
While the interest rates for a regular savings account are around 2.75 per cent to 3 per cent, the fixed deposit rates have significantly increased.
Here's how you can activate the auto-sweep feature to earn higher interest rates on your FDs.
Limitations Of Auto-Sweep
Suppose your bank's liquidity limit is Rs 1 lakh, and you have Rs 5 lakh in your bank account. If you turn on the auto-sweep feature, Rs 4 lakh will convert into an FD for a duration of your choice. In this case, you'll earn 2.90 per cent on your Rs 1 lakh and 5.90 per cent on Rs 4 lakh. However, if you want to withdraw Rs 1.5 lakh, exceeding the threshold limit of Rs 1 lakh, a penalty will be levied on the amount you have removed from the initial fixed deposit amount, which in this case is Rs 50,000.
So, you will earn interest rates applicable to your regular savings account on the amount you have withdrawn from the fixed deposit. However, the remaining amount in the fixed deposit will continue to earn higher interest rates.
Things To Lookout For While Opting Auto-Sweep
Check the threshold limit of your bank's auto-sweep facility, the limit which can be kept liquid. Opt for this option only if your monthly spending is less than the liquidity limit. You should check the maturity date and interest rates of the fixed deposits at various banks and go for the bank which offers a low maturity date with high interest.