Kotak Mahindra Bank has announced the launch of its ActivMoney feature which gives customers the benefit of Fixed Deposit (FD) like interest and the flexibility to access their funds anytime. Through ActivMoney, excess funds in the account, beyond a defined threshold, are automatically transferred into a FD, thereby helping customers earn a higher interest on their savings. Here is a review.

Decoding flexi FD

A flexi fixed deposit offers high flexibility and convenience to the depositors. It is a combination of an FD and a savings account. The scheme ensures that the depositors get benefit from higher interest rates offered by FD along with the liquidity of a savings account.

In Kotak ActivMoney, surplus funds above a specified threshold are transferred from a current/savings account to a deposit and vice versa. This offering allows you to enjoy liquidity of a savings or current account coupled with high earnings of a FD. This deposit is auto-linked to the same account from where the funds are moved. There is no extra charge for ActivMoney.

Threshold value

The minimum sweep in/out threshold value is ₹10,000 (Kotak 811: sweep out is ₹25,000), ₹25,000 (Edge & other equivalent savings account variants, all salary account variants, NRO & NRE savings accounts except Platina), ₹50,000 (Ace / Pro & other equivalent variants), ₹2 lakh (Platina NRO/ NRE variants), ₹3 lakh (accounts under Kotak Privy League), and ₹10 lakh (accounts under Kotak Private Banking). For current account holders, the same is more than or equal to 2 times the required minimum balance requirement as per product variant, or ₹50,000 whichever is higher.

How does it work?

At the end of the day if there is surplus money over the specified threshold (sweep out limit) the same would be auto-moved to a fixed deposit of 180 days duration (1 year for NRE savings account) at the prevailing FD rate (up to 7 per cent per annum). Rates are same for all customers. FDs will be created in multiples of ₹10,000

In case you are falling short of funds in your account, the deficit will be withdrawn from your FD. The fixed deposit created does not carry any pre-closure/part closure penalty which is usually 0.5 per cent to 1 per cent. You can pre-close the auto fixed deposit (made via ActivMoney) linked to the account but before closing the FDs manually, you would need to deactivate the ActivMoney feature. FDs made through the feature of ActivMoney will be liquidated on a LIFO basis i.e. Last in First out.

TDS will be applicable on fixed deposit interest.

How is it different?

In Kotak ActivMoney, funds in excess of sweep out threshold limit moves in to FD on daily basis at end of the day. This compares with some products of other banks where it is transferred on a fixed day of the week or at a fixed frequency. Daily sweep outs may generate more returns than weekly schemes.

Also, there is no premature penalty is applicable on FDs made through ActivMoney. Other offerings in the market may charge penalty on premature liquidation of FDs.

How to open

New customers can avail of this facility when they open an account online via www.kotak.com or by visiting the nearest branch. Existing customers can sign up through mobile banking shortly or visit the nearest branch.

Our take

Kotak ActivMoney is a fresh take on flexi fixed deposit facility with two-way sweep features. It addresses problems such as low-interest rates (on savings A/C), limited flexibility, longer investment duration, and penalty on breaking such an FD. Blending of fixed deposit interest rate and savings account interest rate ultimately means higher rates.

The offering could be optimised in some ways. One, it can offer special benefit for senior citizens and women depositors. Two, issuance of fixed deposit advice in case of FDs created via ActivMoney could help documentation. Similarly, customers should be given separate statements for sweep in/sweep out transactions triggered due to ActivMoney feature. These two features can enable better tracking.

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