07 May 2011
Bank Sweep Account is not a different type of a bank account but an additional facility linked to your existing bank account.
On the basis of standing instructions, if the balance in your account goes above the predefined amount the amount in excess of such amount is automatically transferred to fixed deposit, that earns you a higher rate of interest. This is called 'sweep'
On the other hand, if you issue a cheque which is of value more than the predefined amount, the FD is withdrawn automatically and the cheque is honoured. This is called 'reverse sweep'
Take for example, the predefined limit for Account of Mr. X is Rs. 25000. His current balance is Rs. 20000. He deposits Rs. 50000 in the account. Now the balance has gone to Rs. 70000. Now the amount in excess of Rs. 25000 i.e. Rs. 45000 is transferred to Fixed Deposit and the account has a balance of Rs. 25000. Now suppose Mr. X issues a cheque of Rs. 35000. But the balance in the account is Rs. 25000. This time Rs. 35000 shall be withdrawn from the FD and the cheque will be honoured. The position will now be Rs. 25000 in account and Rs. 10000 in FD.
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