Flexi deposit schemes are deposits that combine the advantages of fixed deposits (FDs) and savings bank (SB) or current accounts. The depositor having flexi deposit with a bank gets the advantage of higher interest rates of FDs and, at the same time, the liquidity associated with SB and current account. So, how does the flexi deposit scheme work?
A SB or current account having auto sweep-in facility automatically transfers the amount in excess of the threshold limit specified by the accountholder to FD. Due to this, the accountholder get the benefit of higher interest rate on FD. Currently, SB account carry interest rate of around 4 per cent per annum and current accounts do not carry any interest at all, while the interest rate on FDs range from 4% to 7.5%, depending on the tenure of the deposit which ranges from 15 days to two years or more.
If an accountholder has fixed a threshold limit of Rs 30,000 and has in his SB account Rs 50,000, the excess amount of Rs 20,000 will be automatically converted into one or more FDs for a tenure specified by the accountholder at the prevailing rate of interest. Thus, the accountholder enjoys the benefit of higher return.
Auto Sweep-Out (Reverse sweep)
Sweep-In For Liquidity
This is the exact opposite of sweep-in. Under the auto sweep-out facility, any deficit or shortfall in the SB or current account is made up by transfer of funds from the FD linked to the SB or current account. The facility enables the accountholder to avail cash as and whenever he needs it. The bank may transfer a part of the FD or the entire FD amount to make up for the deficit in the SB or current account, depending on the specific terms and conditions of the flexi account. The auto sweep-out (or reverse sweep) facility provides the advantage of liquidity of the SB and current account whenever he is in need of cash.
In order to avail this facility, the bank may require a minimum balance to be maintained in the SB or current account as well as the FD account. The minimum balance may range between Rs 10,000 to Rs 50,000, depending on the specific rules of the bank. Most of the public and private sector banks in India offer flexi deposit schemes to their customers.