New Delhi: If you want to earn higher interest rates than a savings account offers you, but still want to retain the flexibility to withdraw funds when needed, a sweep-in FD may be suitable for you. On the other hand, a regular FD is an option for those who want to keep their money deposited for a fixed period. Both offer the opportunity to earn interest, but the rules for withdrawal, interest calculation, and premature closure may differ. Therefore, before investing, it is important to understand the difference between sweep-in FD and regular FD and which option may be right for you.
What is sweep-in FD?
With a sweep-in FD, any savings account balance above a certain threshold is automatically transferred to an FD. This allows the excess funds to earn interest at the FD rate. Furthermore, when the savings account runs out of funds for a payment, the funds can be withdrawn from the FD, subject to bank regulations. The advantage of this is that it can be easier to access the money when needed, while earning interest on the additional amount. However, the amount that can be withdrawn and the interest rate impact depend on the bank’s terms.
What is a regular FD?
In a regular FD, you deposit a lump sum for a fixed period. Returns are based on the chosen period and the bank’s applicable interest rate. If you need to withdraw funds before maturity, premature closure rules may apply, which could result in reduced interest or a penalty.
Key differences between sweep-in FD and regular FD
Way of depositing: With a sweep-in FD, any amount above the threshold limit in your savings account can automatically be transferred to an FD. With a regular FD, you deposit a lump sum and choose the tenure of your choice.
Facility to withdraw money: With a sweep-in FD, funds can be returned to the account if the savings account balance falls short, as per the bank’s rules. With a regular FD, premature withdrawal or FD closure may be required to withdraw funds before maturity.
Interest and returns: With a sweep-in FD, the amount transferred into the FD earns the applicable FD rate for the relevant period. However, withdrawals may impact the interest earned. Regular FDs earn interest based on the chosen period, but premature closure may result in a reduced interest rate.
Fees and other terms: Sweep-in FDs may be subject to minimum balance requirements and service charges. Even with regular FDs, premature closure rules and penalties vary depending on the bank and type of FD. Not all banks have the same fees or rules.
Which FD is right for whom: Sweep-in FDs can be useful for those who have excess funds in their savings account but also need money for regular payments or unexpected expenses. Regular FDs may be a better option for those who are saving money for a specific goal and don’t want to withdraw it for a certain period.
Which FD is better?
If you often have excess funds sitting in your savings account and might need them for unexpected expenses, consider a sweep-in FD. This can help you earn interest at the FD rate on the excess money and maintain access to the funds whenever needed. At the same time, if you have deposited money for a specific goal and do not need to withdraw it for some time, then regular FD can be considered.
