All about flexi bank account

On the banks website under deposit schemes you must have come across flexi bank account or must have heard some where, but what exactly flexi bank account is?

Banks have introduced a new banking account- flexi bank account under this they offer higher interest of a fixed deposit and the liquidity of a savings account. Under flexi account you can set your cash limits on the basis of your regular cash requirements and transfer the remaining amount to your term deposit and earn higher interest. During the opening of this account in the form once you have set the rules, the bank will do it automatically.

For instance, you have opened a flexi account of Rs 100,000 for a year, thus your flexi deposit of Rs 70,000, transferred to fixed deposit will earn 5% interest or Rs 3500 every year. The remaining amount of Rs 30,000 will remain in your savings account which you can use to meet your everyday needs as well as earn 3.5 per cent interest or Rs 1,050.

In case you issue a cheque of Rs 35,000 the excess amount of Rs 5,000 it would be transferred into your savings account from your flexi deposits with no extra charge on it depending on your bank terms.

Although some of the banks have different types of flexi bank accounts each having its own rules about the same. Generally there are two types – flexi fixed deposit account and sweep account.

Flexi FD

With flexi FD you can withdraw funds whenever you require. You can open a fixed deposit account ranging between Rs 25,000 to Rs 50,000 for a specific term depending on your bank. Some banks give option of zero balance savings accounts for a higher FD amount.

In case you require more cash than what you have in your savings account then you get the benefit of flexi FD. In such situation your bank will withdraw the excess required amount from your flexi FD and deposit it in your savings account. If you have more than one FD then the bank works on ‘First In, First Out' or FIFO basis thus breaking the first FD opened.

Every bank has their own rules regarding flexi FD schemes. For instance if you have opened a flexi FD account with IDBI Bank or ABN AMRO these banks will split FD into units of Rs 1,000. In case, you want to withdraw Rs 16,200 these banks will transfer Rs 17,000 from your flexi FD into your savings account.

Whereas the HDFC bank splits FD into units of Re 1 thus transfer only the exact amount you need and the rest will remain balance in your flexi FD to continue to earn interest as per the bank’s rate.

Sweep account

Sweep account also known as savings plus account is the reversal of a flexi FD. You should open a savings account in which you fix a minimum limit and the balance that exceeds this limit will automatically be transferred into your FD.

In ICICI bank sweep account you have to maintain a minimum balance of Rs 10,000 in your saving account and the excess amount will be transferred to your FD in multiples of Rs 5,000. While in State Bank of India in sweep account with a minimum of Rs. 10,000 a new FD is created whenever there is a transfer of money over and above Rs 10,000. in Canara Bank the minimum limit in sweep facility is of Rs 15,000.

Advantages and disadvantages of these accounts

In flexi FD account you can enjoy benefits of both savings as well as fixed deposit i.e. higher interest of fixed deposit and liquidity of savings account.

But it also has a drawback. You can enjoy the benefits for only a short term, because the tenure of these accounts is of one year only as its main aim is to give you liquidity and higher interest.

Most of the banks charge the penalty, if customers do not maintain minimum limit in their savings account. There is also a pre-closure charge in case customer closes these accounts before the tenure.

In flexi FD reverse sweep facility is not allowed that is the funds from your savings account cannot be transferred into your flexi FD. In sweep account reverse sweep is allowed.

Also there is a set limit for overdraft and you can keep money in your account for a minimum number of months only. Therefore, investing in these accounts means you invest your money in one place and there is no diversification of your portfolio.

Which account is better?

If you want that to earn higher interest on your money in savings account then flexi scheme might be helpful. However, when you opt to open any of these accounts you must carefully analyze your financial requirements to set the minimum limit as you can be penalized for falling below the predetermined levels or pre-closing of accounts. The decline in interest rates of fixed deposits should also be taken into consideration while opening an account.