A fixed deposit investment is one of the most convenient forms of saving bulk amount. Most beneficial factors under fixed deposits are the assured returns. A fixed deposit service is provided by Non-Banking Financial Companies (NBFCs) and other financial institutions. There are several reasons why an investor trusts fixed deposit over any other form of investment such as safety and security of money, fixed deposit interest rates, free from market risk and sizeable profit at the end of the tenure.
A fixed deposit offers way higher returns than a savings account. Furthermore, a fixed deposit deals with a bulk amount which cannot be broken, thus, your savings are not affected unless there is a dire need of money. The Fixed deposit investment rate differ from bank to bank. However, the most flexible fixed deposit interest rates are provided by the Non-Banking Financial Companies (NBFCs).
Nowadays, the financial institutions have come up with flexi deposit.
A Flexi deposit is nothing but a combination of the advantages of fixed deposits (FDs) and savings bank (SB) accounts or current accounts. A flexi deposit helps the depositor to avail a higher rate of interest on fixed deposits. And at the same time, the liquidity related to that of saving the bank and current account improves too.
How does a Flexi Deposit Scheme work?
An Auto Sweep-In:
A savings bank or current account boasting an auto sweep-in-facility that transfers the excess amount of threshold limit automatically. The threshold limit is specified by the account holder on the fixed deposit. Because of this, the account holder gets a higher interest rate on fixed deposits.
This is how he benefits from a flexi deposit scheme. As per the current market rates, a savings account have an interest rate of 4% while the current accounts do not have interest at all. On the contrary, fixed deposits offer interest rates from 4%-5% and there are several NBFCs who are offering the same between 8-8.5% depending upon the tenure.
A Flexi deposit works effectively by automatically converting excess savings amount into one or more FDs for a period as specified by the account holder. For example, if you are an account holder in a financial institution and you have fixed a threshold limit of INR 30,000 and apart from that you have a savings bank account which has INR 50,000, thus over here, the excess amount of INR 20,000 will be automatically converted into one or more fixed deposits for a period that you had earlier specified. This helps you to get higher returns as per the prevailing rate of interest is considered.
An Auto Sweep-Out:
This term is exactly opposite as that of sweep-in. When we talk about the auto sweep-out facility, it is important to know that any shortfall or deficit in savings bank account is made up by the transfer of funds through fixed deposit, linked with savings bank or current account. This is pretty helpful for the account holder as it enables him to get cash whenever it is required. It is on the financial institution to transfer a part of FD or an entire FD based on the situation to cover up the deficit in a savings bank or current account. Thus, one can say that the auto sweep-out facility helps to improve liquidity.
The aforementioned points help to understand flexi deposits and their functioning. The returns on FD is determined by the options you choose. Thus, make sure you choose wisely.