Flexi fixed deposits have gained popularity as a flexible alternative to regular FDs. These schemes offer the combined benefits of a savings account and a fixed deposit. This provides enhanced liquidity and potentially higher interest rates.
What is a Flexi Fixed Deposit?
Flexi FDs are also known as sweep-in or flexi deposits. These are hybrid financial products linked to a savings or current account. Excess funds in these accounts are transferred to a fixed deposit. It allows investors to benefit from higher interest rates. If the savings account balance falls below a certain limit, funds from the FD are transferred back to maintain the required balance.
Key Features of Flexi Fixed Deposits
- Linked Accounts
Flexi deposit schemes connect a savings or current account with a fixed deposit.
- Automatic Transfers
Excess funds in the linked account are transferred to an FD. optimising returns.
- Partial Withdrawal
These deposits allow partial withdrawals without breaking the investment. It helps ensure access to funds when needed.
- Higher Interest Rates
Flexi fixed deposits typically offer higher interest rates than savings accounts.
- Financial Management
These deposits facilitate efficient fund management. This is done by combining the liquidity of a savings account with the earning potential of a FD. It helps ensure your money works harder for you.
Benefits of Flexi Fixed Deposits
Liquidity
One of the standout features of flexi fixed deposits is their liquidity. Unlike regular fixed deposits, flexi fixed deposits allow for partial withdrawals. This is typically without any significant penalties. This ensures that your funds remain accessible. It thereby provides financial flexibility to meet unexpected expenses.
Automatic Fund Management
The automatic sweep-in and sweep-out facility ensures that your funds are optimally utilised. Surplus money in your account is transferred to an FD to earn higher interest. If you need funds, they are automatically transferred back to your savings account. This process simplifies fund management and ensures you earn the best possible returns.
Convenience
Managing multiple accounts and keeping track of balances can be cumbersome. Flexi fixed deposits simplify this by linking your savings and fixed deposit accounts. This transfer mechanism ensures that you do not have to manually move funds. It lets you focus on other aspects of financial planning.
How Flexi Fixed Deposits Work
Flexi fixed deposits operate on the principle of automatic fund transfers. Here’s a look at how they function:
1. Account Setup
Open a savings or current account linked to a flexi fixed deposit. This can often be done through financial platforms that offer user-friendly processes.
2. Deposit Funds
Deposit money into your savings or current account. Any surplus funds beyond a set threshold are transferred to the linked FD account.
3. Earning Interest
The surplus funds in the FD account earn high interest rates.
4. Auto Withdrawal
Funds are automatically withdrawn from the FD to maintain the minimum balance. This is done if the balance in your savings account falls below the threshold,
5. Partial Withdrawals
You can withdraw part of the funds from the FD without breaking the entire deposit. This ensures liquidity and flexibility.
Taxation on Flexi Fixed Deposits
The interest earned on flexi fixed deposits is taxable under the Income Tax Act, 1961. This interest income is added to your total income and taxed according to your income tax slab. Issuers deduct Tax Deducted at Source (TDS) if the interest income exceeds ₹40,000 in a financial year. This limit has been set at ₹50,000 for senior citizens.
Choosing the Right Flexi Fixed Deposit
When selecting a flexi fixed deposit, consider the following factors:
Interest Rates
Compare the interest rates offered by different banks and financial platforms. Bajaj Markets, for example, provides detailed information on their interest rates. This can help you make better financial decisions.
Minimum Balance Requirements
Check the minimum balance requirements for the savings account. Also, consider the threshold for the automatic transfer to the fixed deposit. Ensure that these requirements align with your financial habits and needs.
Fees and Charges
Review any fees and charges associated with the flexi fixed deposit. Some banks may charge for automatic transfers or partial withdrawals. So, it’s important to understand these costs upfront.
Customer Service
Choose an issuer known for excellent customer service. Good customer support could help you manage FDs and resolve issues .
Flexi fixed deposits offer a compelling blend of flexibility, higher returns, and convenience. They are a great choice for those looking to maximise returns on their surplus funds. Marketplaces like Bajaj Markets provide user-friendly access to these schemes. This can make it easier for you to manage your finances.
Understand the features and benefits of flexi fixed deposits. By doing so, you can make enhanced decisions that align with your financial goals. Evaluate your finances, compare options, and choose a scheme that meets your needs.
