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Saving money is an important financial habit that individuals should develop. Having a savings account is one way to set aside money for future use, emergencies, or for achieving financial goals like . However, savings account interest rates are often nominal, which means that the growth of your savings over time can be limited. Growing your money is important for achieving your financial goals, such as saving for retirement or a down payment on a house.
Investing in other avenues can help grow your money, but this often comes with lock-in periods and higher risk levels. This is where auto sweep facility in savings accounts help. Any surplus funds above a predefined threshold are automatically converted to a Fixed Deposit (FD), earning higher interest rates. This also means that you can maintain all-time liquidity with no lock-in period and associated risk.
How to set up an auto sweep facility to grow your money?
Research different banks and compare their auto sweep facility offerings. Also check if your existing bank offers this facility, often referred to as ActivMoney. To set up the facility, visit your bank’s branch or use their online banking platform to complete the process digitally.
Set the threshold– Once you open a savings account with an auto-sweep facility, you must set a threshold amount. For example, you might set a threshold of Rs. 50,000. Any amount above the set threshold limit in your savings account is the surplus amount. If you withdraw money from your savings account when the balance is below the threshold, the FD will be broken prematurely and the required amount will be transferred back to your savings account.
Creation of FD– Once the threshold in your auto sweep savings account is surpassed, the excess funds are automatically converted into an FD with a tenure chosen by the bank or as per your preference. You can withdraw from ATMs or via cheques, shop online, and pay with the available savings account balance. Both savings accounts and the FD amount will earn interest at their respective rates.
Accessing the FD– In case of insufficient balance in your savings account to meet a withdrawal or transaction, it breaks the FD prematurely and transfers the required amount back to your savings account to complete the transaction. This is known as reverse sweep which ensures you have 24/7 access to your funds.
Leverage the benefits of higher interest rates: You earn a higher interest rate on the swept-in FD amount than what you would have earned in a regular savings account.
Benefits of the auto sweep facility to grow your money
The facility of autosweep in savings accounts is useful for anyone looking to make the most of their savings and achieve their financial goals effectively. Here is how.
- Avoid the temptation to spend excess money
Creating a disciplined financial plan to achieve your savings goals is essential, and the auto sweep facility helps you with this. With auto sweep and ActivMoney savings accounts, surplus funds are automatically transferred to the linked FD once the threshold is set, discouraging impulsive spending.
- No manual transfers
Unlike traditional methods, where you have to manually transfer surplus funds to an FD, the Auto Sweep Facility automates this process. It saves you time and maximises your savings in a hassle-free way.
- Opportunity for short-term investments
Since the FDs created through the Auto Sweep Facility typically have a tenure of 180 days, it provides an opportunity for short-term investments. This is useful when you want to earn higher interest on excess funds without committing to long-term lock-ins.
- Mitigates inflation impact
Leaving surplus money in a regular savings account may result in its value being eroded by inflation over time. By utilising the auto sweep facility, you earn better interest on the FD, which helps combat the impact of inflation and preserves the purchasing power of your savings.
Using the auto sweep facility to grow your money is a prudent financial move. It lets you maximise the value of your savings, earn higher interest rates, and maintain liquidity all the time. Leveraging this feature can help you progress efficiently towards your financial objectives.
Also Read: Discover low-risk ways to earn higher interest on your savings
