Flexi Fixed Deposits

A Flexi Fixed Deposit is a special kind of deposit scheme offered by banks in India and many countries in the world, which is a combination of demand deposit and a fixed deposit. The depositor is able to enjoy both the liquidity of savings and current accounts as well as the high returns of fixed deposits.

Mode of working

The scheme has two features which effectively combine the benefits of savings and current accounts and fixed deposits:

1. Auto-sweep facility (sweep-in ): The balance in excess of a stipulated amount is automatically transferred to a fixed deposit (FD) for a default term of one year. Hence, amount in excess of a fixed limit can now earn a substantially higher rate of return. FDs formed through auto sweep carry the interest rate on FD of one year, prevalent on the day of the auto sweep. Hence, the Flexi Fixed Deposit scheme has two components: a savings and current account component, and a fixed deposit account component.
2. Reverse sweep (sweep-out): In case of shortfalls in the savings account to honour any debit instruction (e.g. when the customer wants to withdraw money through cheque or through ATM), the balance in the FD to the extent needed for meeting the shortfall is automatically withdrawn in multiples of Rs 1000 (or any other amount set by the bank). The remaining balance in the FD continues to earn higher interest at the original rate applicable to FDs. Hence in case the customer wants to withdraw more than what is deposited in the savings account component, the bank would withdraw money from the fixed deposit component.

Hence effectively, this scheme is linking of savings and current account with a FD.

In many banks, this "linking" is free of cost.

Many banks do not allow customers to avail loans against amount in the FD component of Flexi Fixed Deposit.^[1][2]

References

1. "Andhra Bank". andhrabank.in. Retrieved 27 April 2015.
2. "ORIENTAL BANK OF COMMERCE". obcindia.co.in. Retrieved 27 April 2015.