Sweep-in accounts combine the benefits of savings account, FD

Sweep-in accounts combine the benefits of savings account, FD
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First Published: Mon, Dec 06 2010. 09 38 PM IST
Updated: Mon, Dec 06 2010. 09 38 PM IST
I had a salary account in ICICI Bank. In my new organization, I have a salary account in another bank because they don’t have a tie-up with ICICI Bank. Can I convert my ICICI Bank salary account into a sweep-in account since I plan to park some funds in it but I may need these funds anytime in the next two years? Is there a better option?
—Deepa Rao
Since you had a salary account with ICICI Bank and now it is no more a salary account for you because you shifted to a new organization, you can convert this account into a savings account first and then request the bank to convert it into a sweep-in account.
In a sweep-in account, a customer specifies the amount he wants to keep in his savings account or agrees to the minimum amount as decided by the bank for auto sweep. An amount above this specified limit, known as threshold limit, is then automatically transferred to the customer’s fixed deposit account, which is attached to the savings account. Thus, the money does not remain idle in this arrangement and earns a higher rate of return for the customer.
Whenever the customer wants to withdraw a higher amount than that lying in his savings account, the excess is reverse-swept from his fixed deposit account. In this case, the customer earns interest as per the prevailing fixed deposit rates for that particular period. Moreover, interest rates offered on auto sweep deposits and traditional fixed deposit are almost the same.
The product also has some disadvantages. Some banks require you to keep the money transferred under the auto sweep facility for a minimum specified period. While interest rates offered on auto sweep deposits and traditional fixed deposit are almost the same, in case of the former any premature withdrawal attracts a penalty on the total interest rate offered.
I took a home loan of Rs8 lakh five months ago from a housing finance company (HFC). I want to prepay Rs4 lakh to reduce the loan burden. But the HFC is asking me to pay 10% service charge on Rs4 lakh and 2% administration charges. As per Reserve Bank of India guidelines, can they ask for administration charges?
—Vilas
The charges of part payment would be applicable on you. Normally, administration charges are levied during the processing of home loan and not during part payment. So please read the terms and conditions in the loan document once again. Perhaps, there is some clause that talks about the charges on part payment before or after a certain period. If it includes administration charges, too, then you will have to pay.
Also, the service tax should be paid on the charges levied and not on the part payment amount, so please confirm this with the bank once again.
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First Published: Mon, Dec 06 2010. 09 38 PM IST