Save Smart. Make the most of the surplus in savings account

After SBI’s unkind cut in savings deposit rate last year, most banks followed suit. This was the first time banks chose to tinker with the rates after interest on savings accounts was deregulated in 2011. For many years, banks have been offering a flat 4 per cent. Now, most leading banks offer an even more modest 3.5 per cent on your low-value savings deposits.

If leaving large sums of money idle in your savings account earned you petty returns earlier, it is bound to pinch you even more now.

Opting for an automatic ‘sweep’ facility that moves excess money from your savings account into a fixed deposit can help bump up your returns. But there are a few pointers you need to keep in mind. Here’s a look at what’s on offer.

Moving to FDs

One way to push up your returns in savings deposit is to move some of your excess funds into banks that offer slightly higher rates on savings accounts. For instance, Kotak Mahindra Bank, YES Bank and RBL Bank still offer 5-5.5 per cent on savings deposit of up to ₹1 lakh and 6-6.5 per cent for higher-value deposits. But unlike fixed deposits, where rate is a key deciding factor, in case of savings deposit — being a running account — ease of access, reach and convenience of banking matter a lot, too. Hence switching your savings account may not be an easy task.

Hence, if safety is paramount to you, parking some money in bank fixed deposits is an ideal way to boost your returns. Moving to less-than-one-year FDs can straightaway earn you a higher 6.5-6.75 per cent (even 7 per cent in certain banks). But should you need the money before maturity, you will be charged a penalty for premature withdrawal which may bring down your returns.

So how can you earn decent returns on your surplus money without giving up the comfort of easy liquidity?

An automatic ‘sweep’ facility offered by banks can help you move your surplus money from your savings account into a fixed deposit, earning you higher returns without compromising on liquidity. This is because in case of shortfall, money can be allocated back to your savings account. However, you need to understand the fine print of each bank’s sweep facility before choosing this option.

Threshold limit

For starters, you need to understand the threshold limit above which money will be sweeped from your savings account into FD. This varies across banks.

In case of Bank of Baroda’s Super Savings Account, funds exceeding ₹50,000 (₹10,000 in rural) are transferred to short-term deposits with a minimum of ₹10,000.

Essentially, this implies that the first sweep-out happens when your savings account balance reaches ₹60,000.

In case of SBI’s Savings Plus Account, the minimum threshold limit for transfer to term deposits is ₹35,000. Bank of India’s Savings Plus Scheme sweeps out any amount in excess of ₹25,000. Axis Bank’s Encash 24 Flexi Deposit, too, sweeps money into FD when balance in your savings account crosses ₹25,000.

ICICI Bank’s Money Multiplier Plan, however, allows you to transfer surplus money from savings account subject to a minimum of ₹10,000.

HDFC Bank’s Savings Max sets a higher minimum limit of ₹1.25 lakh. Whenever balance touches ₹1.25 lakh or above, the balance above ₹1 Lakh goes into a FD.

Next, you also need to know when, and in what multiples of rupees, the reverse sweep — from term deposit to savings account if the balance falls short of the minimum requirement — is applicable.

In case of ICICI Bank, you can withdraw the funds from your savings account through any channel such as ICICI’s ATMs, internet banking or by issuing a cheque. All linked fixed deposits will be enabled for automatic reverse sweeps in multiples of ₹5,000 when the balance in the savings account falls below ₹ 10,000 . This is done on a Last-In-First-Out (LIFO) basis, pinching you less, as the reverse-swept amount earns interest rates for the period that the deposit was held with the bank. Most banks follow the LIFO basis. In Axis Bank and Bank of Baroda, too, the reverse sweep is done on LIFO basis. In case of SBI, you are given a choice between LIFO or First in First Out.

You also need to know the tenure for which the FD is created. Axis’ Encash allows you the flexibility to choose from a period of six months to five years, while HDFC creates a fixed deposit for a year and a day. Since rates vary across tenures, the flexibility to choose the type of FD can also make a difference to your returns.

Then there are penalty charges on premature withdrawal to reckon. The reverse-swept amount usually earns interest rates at the applicable rate for the period the deposit was held with the bank, less premature withdrawal penalty.

While the automatic sweep facility is a good way to push up returns on the funds idling away in your savings accounts, be sure to go through the finer print of the features.

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