Flexi Deposits – Hybrid Product combining Features of Fixed Deposit and Savings Account
Savings Account V/s Fixed Deposit
Rahul has a salary account with Bank XYZ. Rahul is upset that he has always been maintaining a very high balance in his savings account with the bank; but at the end of 6 months all he got is the interest of Rs 500. A savings account earns interest at the rate of 3.5% (present rate on savings accounts is 3.5% as decided by RBI). You must be wondering this is hardly anything considering that average inflation is in the region of 5%. This means that your average expenses are increasing by 5% and your money is earning only 3.5% returns; result, you end up with negative returns. Rahul is evaluating his options. If he invests this money in a Fixed Deposit he will earn an interest which is 2-3 times higher than what he is currently earning from his saving account. But if he invests the money in Fixed Deposit the money will get blocked as fixed deposits come with a lock-in period of 6 months or 1 year or 3 years or whatever is the tenure of the fixed deposit chosen.
Rahul needs to keep withdrawing money for his daily expenses from time to time and hence he cannot block this money in a fixed deposit. But if he keeps the money in the savings account he earns only 3.5% returns which can’t even beat inflation (cost of living expenses).
Now imagine if the bank were to give you choice to put your money in an account which provides the liquidity (withdraw money anytime anywhere without any penalty) of a savings account and at the same time till the money is in the account it earns high returns of a fixed deposit. Curious to know how????
Enter Flexi Deposits ……… Welcome to the world of flexi deposits …………. Read on to know more………
A flexi deposit is a savings-cum-fixed deposit account. Flexi deposit is a hybrid product which combines the features of a savings account and a fixed deposit. It is a FD linked savings account. A flexi deposit provides the combination of liquidity of a savings account and high returns of a fixed deposit. This means that you can withdraw money from the account anytime either through a cheque or through an ATM like you do in a savings account. But at the same time as long as the money remains in the account it earns high returns of a fixed deposit (without any lock-in period) and not that of a savings account (3.5%). Sounds interesting ???? read on.
Now a days flexi deposits are offered by almost all leading banks. Different banks call this product by different names. Some banks called it AutoSweep Facility, some call it Money Multiplier and while others refer to this product by their own names. Flexi deposits are similar to savings accounts. But here in a flexi deposit account the idle money beyond a set limit automatically gets transferred to a fixed deposit. The customer doesn’t need to tell the bank to transfer this money in a fixed deposit every time. It happens automatically. Similarly when a customer wants to withdraw money and the balance in the savings account is not enough the FD is automatically broken in certain denominations and the money is transferred back to the savings account and available to the customer at the time of withdrawal. But the beauty of this system is that till the time the money remains in the FD it earns high return as compared to 3.5% in a saving account. Also when the FD is broken there is no penalty which happens in case of a traditional FD.
- Karan has opened a savings account with Bank XYZ which is offering the auto sweep facility. Karan deposits Rs 47000 in his account.
- The bank has provision of keep a minimum of Rs 5000 in the savings account and thereafter remaining money is transferred to fixed deposits in multiples of Rs 5000.
- So in this case Rs 7000 will be kept in the savings account and the remaining amount of Rs 40,000 will transferred to 8 fixed deposits of Rs 5000 each.
- Now suppose one day Karan withdraws Rs 13000 from an ATM. In this transaction the bank ATM will disburse the Rs 7000 lying in the savings account and 3 FDs of Rs 5000 each (total Rs 15000) will be broken and the bank ATM will disburse the remaining Rs 6000 (Total withdrawal amount Rs 13000 = Rs 7000 + Rs 6000) and leave the remaining Rs 9000 (FD amount Rs 15000 – remaining withdrawal amount of Rs 6000) in the savings account.
- So now after the withdrawal of Rs 13000 now Karan will be left with 5 FDs of Rs 5000 each.
- After the entire transaction Karan’s balance will be reduced to Rs 34,000 (Initial deposit amount Rs 47000 – Withdrawal amount Rs 13000) out of which Rs 9,000 will be in the savings account and remaining Rs 25000 will in 5 fixed deposits of Rs 5000 each.
- In auto sweep facility whenever account linked FDs are broken the FDs are broken following the Last In First Out (LIFO) rule. This means the latest FD that was last made will be broken first. The below diagram explains how the flexi deposit account will work in Karan’s example.
While a flexi deposit account provides the anytime withdrawal facility of a savings account and high returns of a FD it does have its own share of limitations.
- Flexi deposits normally have tenure of 1 year unlike traditional FD’s which can have a tenure ranging from 1 year to 10 years.
- You are required to maintain a minimum balance in the savings account. If this minimum balance is not maintained the bank may charge a penalty on a monthly or quarterly basis.
- Most of the banks don’t allow loans against fixed deposits under this product.
Here are a few details of some of the banks that offer this product. The information has been sourced from the respective banks’ websites. Please check with the bank first at the time of decision of going for the product.
IDBI Bank - Sweep-in Savings Account
- This account offers you the flexibility of a savings account combined with the safety and high rate of interest of a fixed deposit.
- The FD can be opened with Rs 50,000 and the customer gets a free zero balance saving account with it.
- The saving account is linked with the FD. The customer can easily withdraw money from the savings account by cheque or through ATM. Whenever the customer withdraws money from the savings account the FD is broken in units of Rs 1000 each and the money is transferred to the savings account.
- The remaining balance in the FD account continues to earn high interest of an FD.
Axis Bank – Encash 24
- This flexi deposit product from Axis Bank offers the liquidity of a savings account and high returns of a fixed deposit. This product comes with a fixed deposit linked to a savings account.
- In this account once the balance in the savings account exceeds Rs 25,000 the excess money in multiples of Rs 10,000 is automatically transferred to a fixed deposit.
- The tenure of such FD’s is a maximum of 181 days. On maturity the FD is automatically renewed by the bank for a maximum of 181 days.
- Once the balance in the savings account falls below Rs 25,000 the last FD is automatically broken in units of Rs 5000 and the money is transferred to the savings account.
Union Bank – Union Flexi Deposit
- This product from Union Bank offers the liquidity of a savings account and high returns of a fixed deposit. This product comes with a fixed deposit linked to a savings account.
- The depositor can open a savings account with a minimum balance of Rs 10,000. The customer can issue instructions to the bank to transfer surplus funds over a predetermined balance to Fixed Deposits in multiples of Rs 5000.
- Whenever the balance in the savings account falls below the predetermined level the FD’s are broken in units of Rs 1000 and the money is transferred to the savings account.
Some other banks that are offering flexi deposits are
HDFC Bank – Super Saver Facility
Bank of India – BOI Savings Plus Scheme
Oriental Bank of Commerce – Flexi Fixed Deposit Scheme
State Bank of India – Multi Option Deposit Scheme
Allahabad Bank – Flexi-fix Deposit
Bank of Maharashtra – Mixie Deposit Scheme
Corporation Bank – Money Flex
United Bank of India – United Bonanza Savings Scheme
Even though flexi deposits have few limitations they are still better than normal savings accounts. They provide you access to your money whenever you want and at the same time till the time the money is kept in the account it earns the returns of a fixed deposit. So this account is worth considering rather than leave your money in a normal savings account earning 3.5% returns which can’t even beat inflation.
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