Skip to main content

Debt Planning - Make Bank fixed deposits flexible and more liquid

You can either opt for a sweep-in account or use an overdraft facility

Fixed deposits (FDs), a risk-averse investors' investment avenue of choice, has become more attractive after the recent interest rate hikes by banks. However, the choice of an FD is not a simple one, given many variants.

There are choices between regular FDs, recurring deposits, flexi deposits and sweep-in deposits. Sweep-in deposits are convenient because they are linked to your savings account. An accountholder can also take advantage if there is a temporary surplus and are unsure of the period for which the amount will stay in the account.

Typically, any amount over and above double your minimum average quarterly balance, is 'swept-into' a fixed deposit in pre-specified multiples. However, this would be different for each bank.

Sweep-in deposits: The savings account balance would earn you interest at 3.5 per cent per annum.

The interest rate attracted by the sweep-in deposit would depend on the tenure of the deposit. So, say your account balance is `20,000 and the amount in your sweep-in deposit is `10,000, held for six months. While, your account balance of `20,000 will attract interest at 3.5 per cent, the interest earned by your sweep-in deposit amount of `10,000 would depend on the interest being offered by the bank on a six-month sweep in deposit.

The interest rates offered on sweepin deposits are usually lower than the regular fixed deposits. For instance, Kotak Mahindra Bank offers interest on 1-year, 1-day sweep-in deposits at 6.6 per cent. But, for the same period, the bank offers interest at 8 per cent on standalone deposits.

Most customers opt for a sweep-in facility because of the liquidity it offers. If you draw a cheque on the account and the balance is insufficient to clear it, the bank pulls the deficit money from the deposit. The rest of the amount continues to be in the deposit.

A temporary surplus may be invested in a sweep in deposit. But, if one is sure about the investment tenure, he/she must opt for a standalone FD.

But sweep-in deposits has drawbacks. Apart from lower interest rates, some banks offer this facility for a limited tenure. For example Axis Bank's sweepin deposit product, known as Encash 24, has a maximum maturity period of 181 days (about six months), earning annual interest of 6.25 per cent (or close to 3.13 per cent for six months) for deposits below `15 lakh. On maturity, the bank automatically renews the deposit for the same tenure.

You can make your standalone FD, that fetches higher interest liquid by opting for overdraft facility.

Overdraft: This facility is offered against the standalone fixed deposit.

It is a loan, wherein bank charge 1-2 per cent more than the interest rates offered to you on your fixed deposit.

If you opt for this facility, banks transfer an amount, 75-80 per cent of the fixed deposit, in to your savings account. The overdraft is valid for the entire term of the deposit.

Suppose, you are looking at depositing money for short-term goals such as, say payment of your insurance premium after three months or your child's school fees after six months. If you keep the money in a sweep-in deposit, there is a risk that the money may get used if your savings account balance dips. Instead if you invest the amount in a regular FD, the funds are locked. In addition, could even attract a higher interest rate depending on your bank.

In case you want to avoid OD and paying interest to bank, you can also opt for fixed deposit that allows partial withdrawal. This is bank-specific and investors must check if their bank gives this option.

Part withdrawals of the fix deposits is possible for several private and public sector banks such as Axis Bank, ING Vysya, Kotak Mahindra Bank, Punjab National Bank and others in pre-specified multiples.

Popular posts from this blog

National Savings Certificate

National Savings Certificate Here's everything you need to know about the 5-year savings scheme offered by the Government This is a 5-year small savings scheme of the government. From 1 July 2016, a National Savings Certificate (NSC) can be held in the electronic mode too. Physical pre-printed NSC certificates have been discontinued and replaced with Public Provident Fund-like passbooks. What's on offer The minimum amount you can invest in them is Rs100 and there is no upper limit. Under this scheme, all deposits up to Rs1.5 lakh qualify for deduction under section 80C of the Income-tax Act, 1961. The interest earned is taxable. You can invest in multiples of Rs 100. These certificates can be owned individually, jointly and also on behalf of minors. The interest rates for all small savings schemes are released on a quarterly basis. The effective rate for NSC from 1 October to 31 December is 8%. The interest is calculated on an annual compounding basis and is given along w...

Am you Required to E-file Tax Return?

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   Am I Required to 'E-file' My Return? Yes, under the law you are required to e-file your return if your income for the year is Rs. 500,000 or more. Even if you are not required to e-file your return, it is advisable to do so for the following benefits: i) E-filing is environment friendly. ii) E-filing ensures certain validations before the return is filed. Therefore, e-returns are more accurate than the paper returns. iii) E-returns are processed faster than the paper returns. iv) E-filing can be done from the comfort of home/office and you do not have to stand in queue to e-file. v) E-returns can be accessed anytime from the tax department's e-filing portal. For further information contact Prajna Capit...

Mutual Fund Review: HDFC Index Sensex Plus

  In terms of size, HDFC Index Sensex Plus may be one of the smallest offerings from the HDFC stable. But that has not dampened its show, which has beaten the Sensex by a mile in overall returns   HDFC Index Sensex Plus is a passively managed diversified equity scheme with Sensex as its benchmark index. The fund also invests a small proportion of its equity portfolio in non-Sensex scrips. The scheme cannot boast of an impressive size and is one of the smallest in the HDFC basket with assets under management (AUM) of less than 60 crore. PERFORMANCE: Being passively managed and portfolio aligned to that of the benchmark, the performance of the index fund is expected to follow that of the benchmark and in this respect, it has not disappointed investors. Since its launch in July 2002, the fund has outperformed Sensex in overall returns by good margins.    While every 1,000 invested in HDFC Index Sensex Plus in July 2002 is worth 6,130 now, a similar amount invested in Sensex then wo...

Different types of Mutual Funds

You may not be comfortable investing in the stock market. It might not seem like your cup of tea. But you can start by investing in Mutual Funds. Many first-time investors invest in Mutual Funds. This is because they do not know how to invest in individual securities. Basic information on Mutual Funds People invest their money in stocks, bonds, and other securities through Mutual Funds. Each Fund has different schemes with specific objectives. Professional Fund Managers look after these schemes. Your Fund Manager could help you invest in a scheme that suits your financial goal. Functioning of Mutual Funds You could make money through Mutual Funds in different ways. A single Mutual Fund could hold many different stocks, bonds, and debentures. This minimizes the risk by spreading out your investment. You could earn dividends from stocks and interest from bonds. You could also earn capital by selling securities when their price increases. Usually, you could choose to sell your share any t...

IDFC - Long term infrastructure bonds - Tranche 2

IDFC - Long term infrastructure bonds What are infrastructure bonds? In 2010, the government introduced a new section 80CCF under the Income Tax Act, 1961 (" Income Tax Act ") to provide for income tax deductions for subscription to long-term infrastructure bonds and pursuant to that the Central Board of Direct Taxes passed Notification No. 48/2010/F.No.149/84/2010-SO(TPL) dated July 9, 2010. These long term infrastructure bonds offer an additional window of tax deduction of investments up to Rs. 20,000 for the financial year 2010-11. This deduction is over and above the Rs 1 lakh deduction available under sections 80C, 80CCC and 80CCD read with section 80CCE of the Income Tax Act. Infrastructure bonds help in intermediating the retail investor's savings into infrastructure sector directly. Long term infrastructure Bonds by IDFC IDFC issued an earlier tranche of these long term infrastructure bonds on November 12, 2010. This is the second public issue of long-te...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now