A Money Multiplier Fixed Deposit (FD) is an excellent option for those looking to earn higher returns on their savings without sacrificing liquidity. Offered by banks, this facility links your savings account to a fixed deposit, ensuring your money doesn’t sit idle. With the Money Multiplier FD, you can enjoy easy access to funds and attractive fixed deposit interest rates.
Let’s dive into how this FD works, its key features, and whether it suits your financial needs.
What is a Money Multiplier FD?
A Money Multiplier FD allows you to link your savings account with a fixed deposit. Instead of letting your savings account balance sit idle, this facility automatically transfers surplus funds above a set threshold into a fixed deposit. This way, you earn a higher interest rate on the surplus amount while still having access to funds when needed.
For example, if your savings account balance exceeds ₹30,000 (assuming this is your set threshold), the bank will move the excess amount into a fixed deposit in multiples of ₹5,000. The best part? If you need to withdraw funds, the linked FD is automatically broken, and the required amount is transferred back to your savings account.
How Does a Money Multiplier FD Work?
Here’s a step-by-step look at how the Money Multiplier FD works:
Linking with Savings Account: The Money Multiplier FD links your savings account to a fixed deposit. This ensures that any surplus balance in your savings account above the set threshold is converted into an FD.
Auto-Sweep Facility: When the savings account balance crosses a pre-defined limit, the excess amount is transferred into a fixed deposit in multiples of ₹5,000 or ₹10,000, depending on the bank’s terms.
Reverse Sweep for Withdrawals: If your savings account balance falls below the minimum required amount due to withdrawals, the linked FD is automatically broken (in multiples of ₹5,000, typically). The funds are transferred back to the savings account to cover the shortfall.
Interest Rate Application: The amount withdrawn from the FD will earn interest for the period it was held in the FD, minus any premature withdrawal penalty.
Renewal of FD: When the FD matures, the principal and interest are automatically renewed for the same tenure unless instructed otherwise.
Key Features of the Money Multiplier FD
The Money Multiplier FD stands out for its unique features, offering the best of savings account liquidity and fixed deposit returns:
Minimum Investment: The initial deposit starts at ₹15,000, with additional FDs created in multiples of ₹5,000.
Flexibility: FDs are linked to your savings account, and you can issue instructions via phone banking, internet banking, or a branch.
Auto-Renewal: Maturing FDs are automatically renewed for the same duration unless you opt-out.
Reverse Sweep: Funds are transferred back to the savings account when the balance drops below a set threshold, typically ₹10,000.
Interest Rates: The interest rate on these FDs matches that of regular fixed deposits, varying based on tenure and customer type (senior citizens often get higher rates).
No Overdraft Facility: Unlike regular FDs, you cannot take a loan or overdraft against Money Multiplier FDs.
Multiple FDs: You can create and link multiple FDs to a single savings account.
Eligibility for the Money Multiplier FD
To open a Money Multiplier FD, the following conditions apply:
Savings Account Requirement:
You must hold a savings account with the bank offering the facility.
Eligible Customers:
Resident Indian individuals, Hindu Undivided Families (HUFs), trusts, private or public companies, and partnership firms can open this FD.
Minimum Balance Requirement:
Regular savings accounts must maintain a minimum average balance of ₹15,000. The minimum balance requirement for special savings accounts may be higher, such as ₹30,000.
Benefits of a Money Multiplier FD
Higher Returns: By transferring surplus funds into an FD, you earn higher interest than the standard savings account rate.
Liquidity: The reverse sweep facility ensures easy access to funds when needed without the hassle of manually breaking an FD.
Convenience: Auto-renewal and the ability to link multiple FDs to a single savings account make this a hassle-free investment option.
Customizable Tenure: You can choose the tenure for your FD based on your financial goals, typically starting from one year or more.
Tax Benefits: While the FD itself doesn’t offer direct tax exemptions, the interest earned is taxable under “Income from Other Sources.” However, you can plan your taxes using exemptions under Section 80C for certain eligible FDs.
Frequently Asked Questions
1. Can I take a loan against a Money Multiplier FD?
No, loans or overdraft facilities are not available against Money Multiplier FDs.
2. How is a Money Multiplier FD different from a regular FD?
A Money Multiplier FD links your savings account to an FD, offering liquidity and higher returns simultaneously. Regular FDs, on the other hand, are standalone investments without reverse sweep facilities.
3. Is it mandatory to have a savings account to open a Money Multiplier FD?
Yes, you must have a savings account with the bank to link and operate a Money Multiplier FD.
4. Are NRIs eligible to open a Money Multiplier FD?
Generally, NRIs are not eligible. However, you can confirm the specific terms with your bank.
5. What happens if I want to de-link my FD from the savings account?
You can de-link your FD by contacting the bank via phone banking, internet banking, or by visiting a branch.
Is the Money Multiplier FD Right for You?
If you want to maximize returns on your savings without losing access to liquidity, the Money Multiplier FD is a great choice. It’s ideal for individuals who frequently maintain higher balances in their savings accounts and want their money to work harder for them.
With its flexibility, convenience, and competitive interest rates, this facility offers a perfect blend of savings and investment. Check your bank’s specific terms and conditions to maximize this offering.
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