A financial crisis or emergencies are harsh realities of everyone’s life as life is full of uncertain outcomes. You would be doing everything right to stay financially stable but you never know about the future. The ongoing pandemic is the biggest example of the same. Every responsible person would always want to keep some emergency fund that could be used in crisis situations. But what if you waste your emergency fund or things don’t go as per your plan? Well, a sweep-in account or a sweep fixed deposit can be the ideal option to keep your emergency money aside and safe.
Having a savings account is great but is it beneficial enough for keeping your emergency money? Savings account can be a good place to start building your emergency fund. However, as the size of the fund increases, solely relying on savings account may not be an effective process. The first reason is the falling interest rate on deposit accounts such savings accounts. Secondly, you would want to keep your emergency money out of your direct reach.
To avail the emergency money, you would want the money to be out of sight but you also want the liquidity of your funds such that you don’t have to face complications when you want to withdraw the emergency money.
Now, most of you would think that Fixed Deposits as the best way to keep your money aside and safe at the same time, but this also has a lot of setbacks. A Sweep-In Account can offer the best of both the worlds.
A Sweep Account Is an ideal facility to build your Emergency Funds
A sweep account is a unique concept that is introduced by the banks as a bridge between the gaps or limitations created by fixed deposits and savings accounts. A sweep account is a concept that combines the benefits of both savings account and fixed deposits, leaving the limitations aside. A sweep account offers good interest rates(similar to the fixed deposits) and easy release of funds when you need them without any penalty or other complications.
In the case of a sweep account, there is no problem of liquidity or release of money like Fixed deposits, neither there is a problem of low interest rates when your emergency money is stored in a savings account. Both these disadvantages are covered and one can achieve Fixed Deposits like interest rates and Savings account like fluidity in cash flow.
How Does A Sweep Account Work?
A Sweep account is a feature in which the excess funds lying in the savings account is sweeped to create a Fixed Deposit. Let’s divide the process into small steps for your better understanding:
- Firstly, you need to decide on a threshold amount. And everytime your savings amount crosses the threshold amount, the amount that exceeds the threshold amount is used to open a fixed deposit.
- Now, banks will offer prevailing fixed deposit interest rate on the newly formed Fixed Deposit. So, your money will keep on growing.
- Whenever the balance in your savings account is below the threshold amount, the deficient amount is reversed into the savings account. The remaining amount left in the fixed deposits continues to earn the prevailing interest rate.
- Through this process, you are eligible to make withdrawals that exceeds the balance of your savings account, without manually setting up a withdrawal request. The remaining amount left in the Fixed Deposits (FD) continues to earn higher interest rate than savings account.
In this life full of uncertainities, you need to stay prepared for financial emergencies. The Sweep-In Facility is a very beneficial way of securing your emergency money without worrying about liquidity. You can open savings account online instantly and set up a sweep account to save for unforeseen emergencies.