Banks have developed many types of accounts and facilities to help customers with a better banking experience. One of these special facilities is a sweep in/out account. In this article, we will try to better understand this type of account and its relation to IPO investing.
What are Sweep-in/Sweep-out Accounts?
Utilising an auto sweep account or sweep in/out savings account is a hassle-free way to let your money work harder for you with minimal effort on your part.
- A sweep-in savings account is a type of savings account that automatically transfers funds from a savings account into a fixed deposit account when the balance in the savings account exceeds a certain threshold.
This threshold is called the “sweep-in limit.” The purpose of a sweep-in savings account is to help the account holder save money by automatically transferring funds into a fixed deposit account when they are not needed in the savings account.
- A sweep-out savings account is similar but with a different logic. It automatically transfers funds from the fixed deposit account to the savings account when the balance in the savings account falls below a certain threshold, which is known as the “sweep-out limit.”
This type of account is used to make sure that there is a sufficient amount in your saving account for future expenses.
In most cases, sweep-in and sweep-out accounts are combined to make a single account called a Sweep-in/out account.
The Advantages of Sweep-in/out Accounts
- The interest you get on money lying around in a plain savings account is very low. A fixed deposit account gives you more interest on the money in your account, but you lose out on the flexibility of a savings account.
- A sweep in/out of accounts links these two accounts. By doing so, the extra money above the set threshold limit in the savings account gets transferred to a fixed deposit account, earning you good interest on the money.
- You do not lose out on the liquidity feature of a savings account through the linked savings account. You can access the funds in the fixed deposit account any time you want, and you get the best of both savings accounts.
Can Sweep-in/out Accounts be Used for IPO Applications?
When filling out an IPO application, the investor might have to submit a savings account with enough funds that he is planning to invest in an IPO. This savings account has to be linked to a Demat account; only normal savings accounts are accepted for this process. Since sweep-in/out accounts are special accounts, any application submitted with a sweep-in/out account will be rejected without question.
The benefits of a sweep in/out account to a normal customer are manifolds, but when it comes to investing in an IPO, they don’t prove to be much beneficial. A normal savings account is enough for investing in IPOs.