How you can make most out of savings account

Who can forget the thrill of operating a savings account in one’s name the first time? The savings account is part and parcel of one’s financial journey for receiving/transferring money, paying utility bills, remittance, withdrawals, etc. While savings account is most likely used for the daily transactions, one should not overlook its potential to do much more than that. Here are some of the ways in which you can use savings account in an efficient manner.  

Auto sweep facility

Auto sweep is a feature that connects your savings account to a fixed deposit account, allowing you to earn higher returns on the excess or idle money in your savings account. Here, when the balance in your savings account exceeds a particular threshold, the auto sweep feature kicks in and the amount over the limit gets immediately transferred to the fixed deposit account. For instance, if the threshold limit in your savings account is ₹50,000 and you have deposited ₹75,000 in your savings account, then the excess ₹25,000 gets converted into fixed deposit. With this, the excess amount helps you earn higher returns than savings account.

Banks such as HDFC Bank, Bank of Baroda, Kotak Mahindra Bank, ICICI Bank and SBI Bank offer sweep-in fixed deposit facility. The terms vary as per the banks. For instance, Kotak ActivMoney savings account provides an auto-sweep facility where the default threshold is ₹25,000 and the funds exceeding it will be automatically transferred into a 180-day Fixed Deposit. In case of ICICI Bank’s Money Multiplier and IndusInd’s Multiplier Max Savings Account, the threshold amount is ₹15,000 and ₹20,000 respectively for the period range. In case of HDFC Bank depending on the variant chosen, the threshold amount ranges at ₹25,000-₹1,00,000.  

Reverse sweep facility

Further, banks offer the reverse sweep facility that works exactly opposite to the auto sweep facility and helps you ensure liquidity. In case of reverse sweep feature, if there is insufficient fund in case of withdrawal, the deficit amount can be transferred automatically from your fixed account to your savings account to ensure liquidity. For instance, you have ₹20,000 in your savings account and ₹1,00,000 of linked FD. If you want to withdraw ₹30,000, the balance ₹10,000 will be taken from the FD.

This works differently in case of different banks. Under ICICI Bank’s Money Multiplier feature, for instance, all linked FDs will be enabled for automatic reverse sweep in multiples of ₹5,000 on a LIFO (last in, first out) basis, when the balance in the savings account falls below ₹10,000. The remaining amount will keep on earning interest at FD rates.

However, note that use of this feature constantly can lead to loss of interest for the account holders.    

Recurring deposits

It might not be possible for every one to invest lumpsum amount in a fixed deposit, in which case one can open a recurring deposit with the bank where his/her savings account lies. While RD schemes let you deposit a fixed sum of money every month to earn interest at rates comparable to fixed deposits, one can opt for these through their savings account in order to develop a disciplined savings habit.

However, if one has a varying monthly income, and wants flexibility by way of freedom to skip an instalment, and a higher interest rate than a savings account, one may consider opening a Flexi RD. Most banks require you to deposit a certain amount (called the core instalment), every month and subsequent investments of a higher amount up to a maximum limit can be invested in any month, if they so desire. Here, some banks may also provide you the flexibility to pre-close flexi RD schemes at any time without any premature closure charges though not all banks allow it. 

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