Flexi Deposits – Hybrid Product combining Features of Fixed Deposit and Savings Account

by Gopal Gidwani on February 5, 2010 · 20 comments

in Fixed Income Securities,Uncategorized

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………

Flexi Deposits
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.

Example

  • 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.

Limitations
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

Conclusion
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.

Please do let us know your comments on the article at gopal_gidwani@yahoo.com

{ 20 comments… read them below or add one }

vikas chandra September 4, 2010 at 6:47 pm

I have rupees 93,000 in idbi bank as savings account.I want to invest the amount in flexi fixed deposit scheme for more than 1 year.I want to know that what is interest rate i will get and how much amount i have to invest?

Reply

Gopal Gidwani September 4, 2010 at 7:47 pm

Hello Mr. Vikas,
Under Flexi Deposits, IDBI Bank has a product called ‘Sweep in Savings’. This is a FD cum Savings Account. The minimum deposit required for this is Rs 50,000. Regarding the interest rates, these are revised from time to time. As per the IDBI Bank website the interest on Less than 1 Year Fixed Deposit is 7% and for Fixed Deposits less than 2 Years is 7.75% (These interest rates are as on 5th September 2010).

Reply

Neil September 8, 2010 at 9:23 am

Hi Gopal,

It really a nice article,
thanks

Reply

Gopal Gidwani September 8, 2010 at 9:47 am

Hi Neil,

Thanks for the comment ………… 🙂

Reply

Ashu December 2, 2010 at 6:31 am

Hi ,
Gopal sir ,

Its really very nice n complete article it hepled me a lot in many projetcs.

Thank u .

Reply

Gopal Gidwani December 2, 2010 at 11:19 am

Hi Ashwini,
Thanks for the compliment. It was nice to know that the article was helpful in your projects.

Reply

sujitha May 31, 2011 at 1:59 pm

Hi Sir,

I’ve recently opened a Flexi-fixed deposit without knowing much about it. Your article helped me a lot to know the features and structure of the deposit scheme much much better. Thanks a lot for that.

I have one clarification here as well.
You said minimum balance need to be maintained for this account. and what is the minimum balance to be maintained in case of ICICI?

Reply

Gopal Gidwani May 31, 2011 at 5:16 pm

Hi Sujitha,
Thanks for your comment and it was good to know that the article helped you to know the features of flexi-deposits.

Regarding your query on the minimum deposit for ICICI.
Well ICICI Bank requires you to have a minimum balance of Rs 15000 in your savings account at the time of opening the Money Multiplier Account (Flexi Deposit). The FD’s will be made for a minimum of Rs. 5000 and multiples of Rs. 5000 over and above a balance of Rs. 10,000 in your savings account.

Reply

geeta August 9, 2011 at 10:35 am

i m operating my PPF account with Bank of Mahrashtra from 8 years know having total amount of Rs.160000, is it possible to convert it into auto sweep facility, if yes does i get more interest that what i m getting in a regular way.

Pls. advise.

Thanks

Reply

Gopal Gidwani August 11, 2011 at 6:55 pm

Hello Geeta,
I dont think it is possible to convert a PPF account into an auto sweep account. For that you will have to open a separate flexi deposit account with the bank.

Reply

rahul August 29, 2011 at 6:04 pm

What are the conditions for Flexible/Multi deposit account in Citibank. I was told that only at the time of booking a flexi deposit I need to have a minimum balance of Rs 50,000 and any amount in excess of 50,000 can be put into a flexi deposit. The very next day I can withdraw Rs 50,000 from my bank account and the flexi deposit remains intact. Also flexi deposit tenure can be as low as 7 days.
Is this information correct?
I could find such information on citibank website.

Reply

Gopal Gidwani August 31, 2011 at 7:10 pm

Hello Rahul,
I checked the Citibank website. It mentions Citibank has a Multiple Deposit account. It starts from Rs. 1,000 onwards for a tenure as low as 7 days. I could not find the mention of Rs. 50,000 anywhere on the website for this type of account.

Reply

Sridhar Rao September 11, 2011 at 5:23 pm

I have opened Flexi Deposit Account at one of the nationalized banks. Is this deposit taxable. Kindly let me know upto how much amount I can go without being taxed

Thanks

Reply

Gopal Gidwani December 2, 2011 at 7:58 pm

Banks do deduct TDS for such products. In case you give a declaration (Form 15G) then the bank will not deduct TDS

Reply

B.Kishore kumar December 30, 2011 at 7:57 pm

Hello Gopal,

First of all thanks a lot for your post. this is really helpful.

I have an savings account in HDFC Bank. It provides a facility named ‘Super Saver’. Is this a auto sweep facility.? if yes , What is the minimum deposit amount and what is the surplus amount swept into this facility when the balance exceeds the minimum deposit amount?

Thanks and Regards,
Kishore.

Reply

Rajshekar July 4, 2012 at 5:50 am

Hi,
I have around Rs 30,000 to start off and invest in a flexi-deposit account. Also, I intend to deposit Rs. 3000-4000 every month with the facility to withdraw occasionally whenever the need arises.
Kindly let me know the best bank with high interest rates/duration of time in this particular scheme and which fits my requirements so that I can expect a better return than a savings account after say 2 years’ time.

Regards,
Rajshekar

Reply

Bikash Ranjan December 27, 2012 at 7:24 am

which is best bank in India to open Flexi Deposit account.

Reply

sarvesh September 14, 2013 at 10:20 am

please tell when do the banks deposit the interest earned amount in the account, is it after one year or on monthly basis. if i keep withdrawing and my balance remains just above the required minimum how do they calculate the interest earned for one year. Thank you

Reply

Gopal Gidwani September 24, 2013 at 3:58 pm

Hello Sarvesh,
For fixed deposits, most banks compound interest on a quarterly basis. For fixed deposits, the interest is paid out on a monthly, quarterly, half yearly, yearly basis or on maturity depending on the selection made by the depositor at the time of opening the fixed deposit.

Reply

shivani bejugam November 22, 2016 at 5:18 am

worth reading article.
I am a bank job aspirant. This article has helped me understand about flexi deposits very clearly…
thanks for such a detailed description.

Reply

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