Flexi Fixed Deposit
Flexi Fixed Deposit is the answer to the limits of Saving Account and Fixed Deposit. As we know that the Interest rate in Saving Account is poor in comparison to Fixed Deposit whereas, Fixed Deposit has the downside of liquidity in contrast to Saving Account. In order to overcome these disadvantages for Customers, Banking Industry has introduced Flexi Fixed Deposit. It is a combination of a Saving Account (or a Current Account) and a Fixed Deposit. This provides their customers liquidity and high interest rate.
Savings Deposit + Fixed Deposit = Flexi Fixed Deposit
Suppose you have a Saving Account in which you have deposited Rs. 50,000. You want to earn more interest than the normal saving account interest rate (which is maximum up to 6%), so, you opted for Flexi Fixed Deposit. This linked your Saving Account to a Fixed Deposit Account in which you set the limit of your Saving Account Balance to be Rs. 20,000. Thus, now, Rs. 30,000is in excess (Rs.50,000- Rs.20,000) to your set limit, would be transferred to the linked Flexi Fixed Deposit.
Auto Sweep Process
The process of automatic transfer of funds to your Flexi Fixed Deposit Account is known as Auto-Sweep Process. Now, your Rs. 30,000 is earning you higher rate of interest of fixed deposit and your Rs. 20,000 is earning the saving account interest rate and providing you liquidity.
Reverse Sweep Process
Here, you should understand that Flexi Fixed Deposit provides you maximum liquidity. It could be understood by considering the above example, in which, suppose you have issued a cheque for Rs. 25,000. In this case, excess of Rs. 5000 would be automatically transferred from your linked Flexi Fixed Deposit account. This process of transfer of funds to the saving account is called Reverse Sweep Process.The remaining amount of Rs. 25,000 (Rs. 30,000 –Rs. 5,000) would continue to earn higher fixed deposit interest.
Benefits of Flexi Fixed Deposit
Flexi Fixed Deposit is beneficial to those investors who think that they might need a lump sum amount in the near future and yet want to earn higher interest rate. There are few important features related to Flexi Fixed Deposit given below:
- The tenure of the linked Fixed deposit can be from 6 months to 5 years( though sometimes bank sets the default term to be 1 year)
- You can access Flexi Fixed Deposit money through Cheque, ATM, etc.
- Generally, the amount transfer in reverse swept process is in multiples of Rs. 1000. (or depending on the amount set by your bank)
- All the process is automatic after you have entered your desired settings.
- The feature of Auto Renewal of your Flexi Fixed Deposit is provided by most banks.
- Investors can have more than one FD linked to their saving account. In this case, the Reverse Sweep Process will follow ‘Last In, First Out’ rule (or for some bank, FIFO rule).
- Loans on Flexi Fixed Deposit are not allowed in many banks.
Here, you should remember that different bank has different set of rules and they may name it differently like Saving Max Plus or Fixed Saving etc.. But, they all want to give their investors the benefits of liquidity and high interest rate through Flexi Fixed Deposit.
