Like most other banks, SBI too has been offering savings accounts with an Auto Sweep facility for many years now.
They have named it as 'Savings Plus' account.
Savings Plus for SBI is essentially a savings account linked to their MODS facility.
With MODS, any surplus funds above a threshold limit can automatically be transferred to the fixed deposits while withdrawals are made in multiples of INR 1k.
In this post, I will do a detailed review of Savings Plus account and provide my recommendation on whether you should opt for it or not...
Key Features and Review
Let's first look at what exactly MODS is?
MODS stands for Multi Option Deposit Scheme.
And at its very essence, it's a fixed term deposit that's linked to a Savings or a Current Account. But, it differs from the standard fixed deposits in terms of how the withdrawals work.
As you know, traditional FDs are broken in their entirety even if you want to withdraw just a small amount from them. That's not true for deposits under MODS.
Instead, the withdrawals actually happen in multiples of INR 1000 while the rest of the money that hasn't been withdrawn continues to earn the higher rate of interest.
It is, as if you did multiple FDs of INR 1000 each and only liquidated ones that you actually needed.
Ease of Opening
This scheme is available at all SBI branches.
You can walk into one and open a new Savings Plus account by submitting your application alongside your KYC documents and 2 photographs.
Alternatively, you can also start your application online by filling Account Opening Form here.
If you already have an existing savings account with SBI, you don't need to open a new account. Rather, just ask your bank to convert your existing account into a Savings Plus Account.
The minimum threshold limit that you can choose in Savings Plus account is INR 25000. What this means is that only the excess funds above 25k will be transferred to MODS.
However, do note that even MODS has a separate minimum deposit size of INR 10k (and in multiples of INR 1k post that).
Essentially, what that means is that because of these two limits, an auto-sweep will only happen once idle funds in your savings accounts cross INR 34999 (i.e. assuming you have opted for minimum limits).
But as soon as the amount goes beyond 35k, all of your excess savings above 25k will be moved to a fixed deposit.
You have the flexibility to choose your own threshold limit subject to a minimum of 25k. You can also define your own minimum MOD deposit size, again subject to a minimum of 10k.
These minimum limits are fairly competitive when compared to other big banks.
I recommend sticking to 10k MOD deposit limit while the threshold limit should be same as your average monthly expenses. Them being same will prevent frequent withdrawals from your account and that may help you get better returns.
Frequency of Sweeps
Auto-sweep of excess funds can happen once a month or once a week.
You can choose the exact day of the week or the exact date of the month when you want this transfer to happen.
Any transfer will be subject to the threshold limit you may have chosen as well as to the minimum MOD deposit amount.
If you are a salaried person, you should ideally choose a monthly date that is up to 2-3 days post your typical salary credit date. If you are a freelancer or a businessman, choose weekly transfers.
Whenever you withdraw money from your MODS linked bank account, your savings account will be debited first.
If the amount you are withdrawing is less than what's already available in your savings account, your MOD deposits won't be touched.
However, if you don't have sufficient balance in your savings account, a reverse sweep will happen and your MOD deposit will be liquidated in multiples of INR 1k till it meets the exact fund requirement.
This entire process is automatic and works in real time just like how a savings account would have worked.
SBI, by default, follows Last In, First Out (LIFO) philosophy for MOD deposits but recently they have started providing you an option to choose First In, First Out (FIFO) option as well.
For frequent withdrawals, stick to LIFO.
Like a lot of other savings account, the SBI Savings Plus account is also subject to a minimum quarterly balance (MQB) requirement.
You will need to maintain at least 5k on an average for a Savings Plus account or else a service fee of INR 50 will be levied on your account every quarter. If you are opting for Premium Savings account, the MQB is 25k.
While by default the maturity period SBI will choose will be 1 year, you have a choice to choose to choose a different duration between 1 to 5 years.
This may be of interest if there are wide variations in interest rates for different durations, but more often than not, 1 year is usually the best choice.
SBI offers same interest rates on auto sweep fixed deposits as it does on its standard term deposits. The rates change very frequently but currently range between 5%-6.5%.
Senior citizens will get an extra 0.5% while SBI staff and pensioners will get an extra 1% over and above these standard rates.
Do note that if you withdraw before the maturity period is complete, applicable interest rate will be reduced by 0.5% from what would have been applied for the actual duration of the deposit.
E.g. Let's say, at time of initial auto-sweep, the 1 year term deposit rate was 6%, while the 6 month term deposit rate was 5.5%. You withdraw this money exactly after six months. You will now get an interest of 5.5% minus 0.5% (i.e. 5%) on the total reverse-swept amount.
This is still higher than the normal savings account rate (which may be as low as 3.5%) but you lost some interest because of this pre-mature withdrawal.
Also, no interest is payable on deposits with a duration of less than 7 days. So avoid super frequent withdrawals.
To avoid frequent withdrawals, ensure that your minimum threshold limit is same as your monthly expenses
Please note that when it comes to first 25k (i.e. the money that hasn't been auto-swept), you will earn the same interest as is applicable on savings bank accounts (i.e. 3.5%-4%) and FD rates will only be applicable to money that's actually has been swept-in to fixed deposits.
The interest earned on MOD deposits will be credited at the time of maturity or withdrawal while the interest on savings account will be credited once every six months.
While evaluating your potential returns, don't only look at fixed deposit rates. Rather, take your entire investment into consideration alongside threshold limits as they can reduce your overall effective return rate quite dramatically.
E.g if you have 50K in FD at 6% per annum and 25K in savings account at 3.5% per annum, your average return is actually 5.16% per annum. If your threshold was 1 lakh, this return would have been 3.5%.
When it comes to the taxation for an auto-sweep account, there are two sets of rules that apply.
First rule applies to the interest earned on your money in the savings account. This interest will be subject to rules for savings bank interest which is tax free for the first 10k per year.
Second rule applies to the interest earned on the MODS deposits. This interest will be treated as FD interest and will be subject to TDS if it crosses 10k in any given year.
SBI's Savings Plus account shines when it comes to auto-sweep savings accounts and is amongst better offerings from big banks.
The strongest aspect of this account is the flexibility it offers.
It allows you to choose your own threshold limit, your own deposit size, your own frequency and your own duration of the deposit. It also allows you to choose whether you want to a LIFO withdrawal or a FIFO withdrawal.
Even the minimum threshold limit is pretty reasonable at 25k. You can either open a new account or simply convert your existing SBI account into a Savings Plus account.
But either way, you will retain all the standard facilities that are available on a normal savings account, i.e. cheque, netbanking etc.
However, when it comes to aggregate returns, SBI isn't the highest. And that's something you should keep in mind. Overall, Fintistic rating for the SBI Savings Plus Account is 3.8/5.
Let me know if you have a question.