What Is A Flexi Bank Account?

A flexi bank account, as the name suggests, gives you the higher interest rate benefit of a Fixed Deposit account and the liquidity of a Savings Account! Here’s what you need to know about it.

The financial industry has fast evolved into a sophisticated unit over the years and it has changed the way we look at and manage our wealth and money. Even the neighbourhood banks have come a long way from the days when banking was synonymous only with opening a Savings Bank, Fixed Deposit or a Recurring Deposit account.

But today, customers have a range of financial products to choose from. The key is to launch products with exclusive features that will create a buzz and sell like hot cakes! Even the conventional banking industry is spicing things up by crafting products with attractive features.

A flexi bank account is one such thing. It is a product which offers inter-linked savings and Fixed Deposit account. The benefit of a flexi bank account comes into play when you require more funds than what you have in your Savings Account. In such a situation, your bank will withdraw funds from your flexi fixed deposit account and transfer it into your Savings Account.

Additional Reading: Want To Open A Fixed Deposit Account? Here Are The Interest Rates Offered

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Flexi bank account, as the name suggests, gives you the higher interest rate benefit of a Fixed Deposit and the liquidity of a Savings Account. Your flexi bank account allows you to set a limit on your Savings Account based on your regular cash needs and transfer any excess money to your Fixed Deposit for higher interest.

Types of flexi bank accounts

Banks offer different types of flexi bank accounts and each has its own set of rules. Broadly there are two types of flexi bank accounts

(1) Fixed Deposit Sweep-in facility

(2) Flexi Deposit

Fixed Deposit Sweep-in facility

A sweep-in facility is an option offered by banks to their Savings Account holders. If you opt for this facility, you need to either open a Savings Account which is then linked to your existing Fixed Deposit account or if you have an existing Fixed Deposit account, you gain access to a Savings or Current Account.

You need to specify the minimum amount that you would like to maintain in your Savings Account, and the excess amount is then automatically transferred to your Fixed Deposit.

For example, a person earning a salary of Rs. 50,000 can set a threshold limit of Rs. 10,000 in the Savings Account. In this case, the excess amount of Rs. 40,000 will automatically get transferred to the linked Fixed Deposit account.

Let’s say the person needs to make an EMI payment of Rs. 15,000. In this case, the surplus of Rs. 5,000 will be automatically deducted from the Fixed Deposit account.

Additional Reading: How To Switch From Fixed Deposits To Debt Mutual Funds

Key points about sweep-in facility

• You need a Savings Account with the bank to opt for the Fixed Deposit sweep-in facility.
• Fixed Deposits are created automatically in case of a surplus amount of cash in your savings account.
• You may end up having multiple Fixed Deposit accounts linked to one sweep-in account.
• In case of a deficit in the Savings Account, the Fixed Deposit that had been created last will be auto-debited to make the payment.
• You continue to earn interest on the other Fixed Deposits which were created in the past.

Flexi Fixed Deposit account

A flexi deposit is one in which you have an inter-linked Savings and Fixed Deposit account. In this case also, during times of deficit in your Savings Account, the money is automatically transferred from your Fixed Deposit account.

However, unlike in a sweep-in facility, the excess money in your Savings Account does not automatically get transferred to your Fixed Deposit account even if there’s a deficit. You have to manually deposit money in your Fixed Deposit account to fill the shortage of funds.

If you opt for a flexi deposit, you run the risk of earning lower interest rates on your Fixed Deposit account when there is a shortage of funds. Also, the rate of interest is slightly lower when compared to a Fixed Deposit with the sweep-in facility.

Key points about flexi deposit

• You need an existing Savings Account with the bank
• You need to connect your Savings Account with the Fixed Deposit account
• When there is surplus amount in your Savings Account, you need to personally visit the bank and open new Fixed Deposits with the excess amount.
• The Fixed Deposits will not be created automatically even if there’s surplus cash in your Savings Account.
• In case you liquidate your flexi deposit before maturity, some banks may charge a penalty of 1%.

Additional Reading: 5 Simple Tips To Manage Multiple Fixed Deposits

Features and Benefits of flexi fixed deposit accounts

Flexi fixed deposit accounts offer a host of features and benefits to account holders, some of which are mentioned below.

• Attractive interest rate –Flexi fixed deposit accounts earn higher interests compared to Savings Accounts, enabling one to earn more through their money.
• Flexible tenures – Different banks have different tenures for their flexi accounts, ensuring one finds a tenure which best suits his/her financial needs.
• Investment amount –Individuals can choose the amount they intend to deposit, with different banks allowing different amounts of deposits.
• Premature withdrawal –Most banks allow premature withdrawals from flexi fixed deposit accounts, subject to individual policies in place.
• Loan facility –Account holders can generally avail loans against flexi fixed deposits, subject to policies implemented by banks.
• Easy to open – Opening a Flexi Fixed Deposit account is simple and hassle-free, with most banks following a fast and transparent process.
• Auto-renewal –Banks generally allow auto-renewal of flexi FDs, ensuring account holders don’t have to worry about renewal.

Additional Reading: Use Your Fixed Deposit To Get A Car Loan

Pros and cons of both these accounts

A flexi fixed deposit account gives you the best of both worlds that is the higher interest of a Fixed Deposit and the liquidity of a Savings Account!

Perhaps the biggest drawback of this system is that it can give you benefits only for a short term! These types of accounts are only for a year as its main aim is to give you liquidity and higher interest.

Most banks penalise the customers if their Savings Account falls below the predetermined level. And there is a pre-closure charge in case of premature closing of these accounts.

The flexi fixed deposit does not allow reverse sweep facility i.e. funds from your Savings Account cannot be transferred into your flexi FD whereas reverse sweep is possible in a sweep account.

There is a limit to the overdraft and there are a minimum number of months for the money to remain in the account. Lastly, choosing to open these accounts would mean parking all your funds in one place and hence no diversification of your portfolio.

Additional Reading: Money Sitting In Savings Account? Time To Start Investing!

How should you decide which one to choose?

The major difference between flexi deposit and sweep-in facility for Fixed Deposits, is the auto-creation of Fixed Deposits in the latter.

If you are someone looking to make the idle money in your savings account to earn higher interest, this flexi schemes might be helpful! However, before you opt to open them, you should carefully analyse your financial requirements as you might be penalised for falling below the predetermined levels or pre-closing of accounts. You should also take into account the drop in interest rates for Fixed Deposits from time to time.

But, if you are looking for a great investment tool to grow your wealth then we suggest that you park your funds in a Mutual Fund.