The right time to use a sweep-in fixed deposit and overdraft FDs


There may be occasions when you require money immediately but do not want to take out a loan to obtain it. If you have money in a fixed deposit (FD), you could utilize it to raise the required amount because it normally has a lower interest rate than a personal or business loan.

However, given that the requirement is just temporary, you may not want to disrupt and compromise your FD plan.

Sweep-in FDs and FD overdrafts are two examples of such products that can offer you immediate liquidity.

Sweep-in FDs: Funds parked in your savings/current account often gives low-interest rates; however, you can choose this option in your bank account to receive a better interest rate.

Under this option, you must notify your bank that if your account balance exceeds a certain level, excess funds should be immediately converted into an FD.

The interest rate on such FDs varies depending on the investment period, but it is normally higher than the savings account rate. The term of this option ranges from one to five years. When you remove money that exceeds the balance in your savings/current account, the difference is swept from your sweep-in FD to your savings/current account without disrupting the entire FD.

FD overdraft: The bank allows this facility to establish an overdraft on an FD by holding it as alien. Banks often allow overdrafts of up to 90% of the FD value. The interest rate for FD overdrafts ranges from 1% to 2% above the base FD rate. The interest on an FD overdraft is calculated daily.

Which is more beneficial?

FD overdrafts are advantageous for investors seeking to make a lump sum investment at a competitive interest rate. Sweep-in FDs are advantageous for investors who frequently receive a significant sum of money for a short period of time.

Even though an FD overdraft requires you to pay extra interest beyond the FD interest rate, it provides you with the ability to meet any temporary liquidity needs without affecting the FD corpus.

You do not have to pay any more interest in a sweep-in fund. Later, you can deposit the cash again and receive the sacrificed interest by remaining invested for the specified period of time. Sweep-in FDs, in essence, encourage you to store more funds in your bank account in order to receive a bigger return on them.

In conclusion, sweep-in FDs encourage new deposits, but FDs overdrafts maintain your existing savings.

Which one to opt for?

FDs overdrafts are straightforward instruments that most investors can understand. To save interest, the user only needs to focus on repaying the used money as soon as feasible. Sweep-in FDs can be a little difficult to grasp.

The interest rate on sweep-in FDs may alter in response to changes in the Reserve Bank of India’s key policy rates. You may also find it difficult to comprehend how interest is computed on your sweep-in FD when you withdraw and deposit funds from it on a regular basis.

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