All of us build our contingency reserves and keep it in our locker or / savings bank account for any emergency that may arise in the future. By keeping this money in savings bank account we are able to maintain the required liquidity of funds; but the interest at 4% per year (if your bank is not offering 6% to 7% interest on savings account. But, these type of accounts minumum balance Rs. 1 lakh. This is not possible for many people) that we earn on the money lying in savings bank account may not be sufficient.
It would be better if we are able to maintain the liquidity & at the same time earn a higher rate of interest on our deposits in SB (savings bank) account.
If your bank is not offering high interest on savings account, here are the 2 (Two) options that can help you earn a higher rate of interest on your money lying ideal in your savings account:
** Sweep in Facility
** Flexi Deposit
Sweep in Facility..!
In order to enjoy the sweep in facility you need to have a SB account. In your SB account you can set a threshold limit, above which any amount deposited in your SB account will automatically move to a FD (fixed deposit) and earn a higher rate of interest prevailing on the fixed deposits for the tenure that it remains with the bank.
In case your savings account balance is low enough to clear your issued cheque then also you need not need to worry about it. Any amount of deficit in your savings bank account will be taken care by your FDs.
For example. you have set a threshold limit of Rs. 10,000 in your SB account and have deposited Rs. 50,000 in the account. Now Rs. 10,000 will remain in your SB account and Rs. 40,000 will automatically convert into FD which will earn you a higher rate of interest of about 7 to 9 % per year.
If you issue Rs.15,000 cheque towards your credit card payment & your SB account has just Rs. 10,000 in the account then the deficit of Rs. 5,000 will be recovered from your FD.
In the above example you will earn SB account interest of 4 % on Rs. 10,000 and 7% to 9 % returns on Rs. 40,000 so you have the benefit of enjoying an additional rate of interest of about 3 to 5 % on Rs. 40,000 and at the same time you are also able to maintain the liquidity for any emergency that may arise.
If you do not opt for a deposit through sweep in facility thinking it is illiquid or you are ignorant about it, then you would lose out on opportunity to earn an additional 3 to 5 % rate of interest that you could easily earn on your deposit of Rs. 40,000 in this case.
Flexi Deposit..!
In order to enjoy flexi deposit facility you need to have a SB account and also book a FD with the bank. Your FD will then be linked to your SB account and in case there is insufficient fund to clear your issued cheque; the deficit amount will automatically get transferred from your FD to your SB account.
For eeample you have Rs. 10,000 in your SB account and you also have booked a FD with the bank of Rs. 1 Lakh. Now this Rs. 1 lakh FD will be linked to your SB account and in case of an insufficient balance in your SBaccount, the fund from this FD will be used.
Suppose you issue a cheque of Rs. 25,000 towards payment of credit card bill & your savings bank account has just Rs.10,000 balance then the deficit of additional Rs.15,000 will be taken from your linked FD and your credit card bill will be paid off.
In the above example you will earn SB account interest of 4 % on Rs. 0,000 and 7% to 9 % returns on Rs. 1 Lakh FD so you have the benefit of enjoying an additional 3% to 5% on Rs. 1 Lakh and at the same time you can also maintain the liquidity for any emergency that may arise.
If you would not have opted for flexi deposit then the liquidity in your saving account will be maintained, but you would lose out on the additional 3 to 5 % rate of interest that you could have earned on your fixed deposit of Rs.1 lakh.
What is the basic difference between Sweep in Facility and Flexi Deposit..?
In a sweep in facility, any amount above a threshold limit automatically gets converted into FD and you do not need to book a new fixed deposit with your bank; while in Flexi Deposit you need to manually book a FD with your bank, which will then be linked to your SB account.
Conclusion..!
Sweep in facility is more convenient way to park your contingency funds as it is automatic while you can go for flexi deposit as well but you need to manually book FD every time you have some surplus cash and then link it with your savings bank account.
Also remember some banks charge penalty of nearly 1 % of interest in case you break your flexi deposit before maturity, but considering the high rate of interest of 7 to 9 % on flexi deposit, the return after 1 % penalty charged by bank is still higher than your SB account rate of 4 per cent.
Src: Personalfn
Financial News Simplified.
Email: fns@personalfn.com
No comments:
Post a Comment