Disadvantages of Auto Sweep Account

Auto Sweep is a process that combines the savings account and FD or Fixed Deposit account. It has both facilities from savings and fixed deposit accounts. With the Auto Sweep system, the excess stipulated amount is transferred from your account in the deposit that will give you a greater return (FD). The amount will be there for a tenure of 1 year.

This Auto Sweep account is to link your savings account with an FD account and defines a limit for your savings account money. Whenever the amount crosses the limitation of the savings account, the excess amount will automatically transfer to your fixed deposit. Thus, the savings in your account can make a higher interest rate than the usual savings account.

How Auto Sweep Works?

You can select the upper limit for the amount you want for your savings account, which is called the threshold limit. Auto Sweep is when your balance exceeds the threshold limit and will transfer to your fixed deposit account. Thus the technical process is Sweep-in. Likewise, if you request money from your savings account, the exceeding amount will be transferred from your FD account to your online savings account. It’s called Reverse-sweep. Additionally, each of these accounts will earn its respective interest percentages.

However, transferring funds doesn’t mean the amount loses its liquidity. Here, an example will be perfect for making it clear. Imagine you’ve opened a savings account with an Auto Sweep facility, and the minimum balance required is 6000/-. Now, you have deposited 40,000/-, whereas you decided on the threshold limit of Rs. 20,000/-. The exceeded 20,000 amount will transfer to your FD account. In this instance, if you have a reverse sweep, then the transferred amount won’t get an FD interest rate.

Auto Sweep Account Disadvantages

Everyone will tell you about Auto Sweep account facilities and their advantages. But here we are with disadvantages as well. You already know the advantages of an Auto Sweep account. Now, if you want to know the disadvantages, then keep on reading.

1. The first one is that pre-mature withdrawal can cause of penalty. Very few banks are there to give a simple interest rate on FDs created through the sweep-in technique instead of the usual compound interest rate on regular Fixed Deposits. In the matter of this case, you can get less interest on your fund due to the penalty charges.
2. Some banks may charge for the Auto Sweep facilities. Hence, it is necessary to know the charges very well before opening an Auto Sweep account. It will be helpful for you before availing of these facilities.

Things Need To Know About Auto Sweep Account

If you are thinking to opt for an Auto Sweep account, there are some essential facts you need to know.

• You will find the Auto Sweep facility helpful only if your savings account has an extra amount. If there’s any probability of fewer funds in it, the sweep-in facility won’t be that favorable to you.
• If you are someone who makes a few withdrawals a month, this Auto Sweep facility is for you. Or else, if you withdraw several times a month, the facility may not be for you.
• Sweep-in facility with an Auto Sweep account is an uncomplicated and clever way to earn a higher rate of interest than your regular savings account. However, this is essential to confirm the calculation of whether the facility will enhance the financial structure or not.

Conclusion

The Auto Sweep account facility is definitely a modish scheme in the banking industry. But before starting with the facility or opening a savings account with a sweep-in system, you have to check your financial status, your frequency of cash withdrawal, and the bank’s system where you want to start the same.

Salaried people who don’t want their money to invest in a sizeable amount on a Fixed Deposit account can use this facility. We hope you’ve gathered enough enlightenment with this article and we are able to mention all the appropriate information.