Most of the banks in India are offering 4% p.a. returns on your savings account. This is inspite of de-regulation of savings account interest rate by RBI circular dated 25th October 2011. Banks are not interested, at least as of now, to increase savings account rate. Perhaps, they are sure that they have loyal customers or the customers have their savings account with them for years and they can not change it now.
But all banks do not think so. Yes bank is offering 6% p.a. on balance upto Rs. 1 lac and 7% p.a. after Rs.1 lac. Kotak Bank and Induslnd Bank are offering 5.5% p.a. on balance upto 1 lac and 6% thereafter.
With the current tax rules, savings account interest upto Rs.10,000 is tax-free income. So, banks offering higher interest rates in savings account sounds attractive. But it doesn’t mean that you’ll continue to get such higher rates. With RBI expected to decrease the interest rates this year, all banks are expected to follow that in terms of FD rates and savings account rate.
But did you read the heading of title as 9% p.a.? Right. Let’s discuss that now.
What is Auto-Sweep Account?
You need to first learn about auto-sweep account. Some banks call it as Flexi-account. The difference is only in name not on features.
Suppose you have Rs. 1,00,000 in your savings account and you are getting 4% p.a. return on that i.e. Rs.4,000 annually.
With auto-sweep account, after the minimum balance required by bank or amount specified by you, the remaining amount will be transferred to fixed-deposit and you’ll earn FD rate on that balance amount.
Suppose, you’ve chosen to maintain the minimum balance of Rs.25,000. Now, in our example, the remaining amount of Rs.75,000 will be transferred to FD automatically. So, on first Rs.25,000 amount, you’ll continue to earn 4% return, while on balance money of Rs.75,000, you’ll get interest of FD.
But what happens if you make the payment of Rs.35,000 via cheque or withdraw by ATM? You’ve only Rs.25,000 in your savings account. So, will your cheque gets bounce?
NO. The bank will automatically withdraw the short of Rs.10,000 from your FD and will encash your cheque or full-fill your ATM withdrawal request.
Points to note
Some banks will automatically link your savings account money with FD after a certain limit. While, in some banks, you’ve to do it manually.
Generally, banks make FD’s in multiple of Rs.10,000
Some banks also charge penalty on breaking FD before the maturity, while others do not charge.
Some banks needs the nomination form also to be filled up every time a new FD gets created.
I’ll further explain to you the same while taking some particular bank accounts.
IDBI Bank offers you the flexibility of a savings account combined with the safety and higher rate of interest of an FD. Open a savings account and you can link multiple FDs to your savings account. If there are no funds in the savings account, the same can be broken (in multiples of Rs. 1,000) from the FD through a debit card or a cheque. Moreover, the FD booked last will be broken first so that you lose the least amount of interest.
In normal savings account, you need to create linked FD’s manually. The same can be done using internet banking facility. Be sure to choose, “Linked with savings account” option while creating online FD. Also, you need to fill-up nomination form for the newly created FD and submit it the nearest branch.
In Women’s account, the FD will be automatically get created after the initial Rs.15,000. The FD’s will be created in multiples of Rs.10,000. This account is good for women.
Choose the duration of the FD carefully after going through the interest rate chart. E.g. IDBI bank offers 8.75% p.a. on FD for tenure 1 year (365 days) and for 1 year 1 day (366 days), it offers 9% p.a. return.
You can keep some amount in your savings account, say Rs.10,000 and put rest of the amount in your linked FD for tenure of 366 days.
This way you’ll get 9% return on your savings account.
ICICI Bank has the facility called Money Multiplier where you can link your FD’s with your savings account. But the drawback is that you have to create FD’s manually.
HDFC Bank calls this facility as Super Saver facility.
SBI bank calls it as Multi-Option Deposit scheme.
Axis Bank calls it as Encash 24.
You need to check with the official website of your bank for further details. If you can’t get it, comment below.
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January 16, 2013