State Bank of India (SBI) has recently revised the minimum threshold for its auto-sweep facility, increasing it from ₹35,000 to ₹50,000. This change impacts how SBI savings account holders can earn higher returns on their surplus funds through the Multi Option Deposit (MOD) scheme.

What is the Auto-Sweep Facility?

The auto-sweep facility, also known as the Multi Option Deposit (MOD) scheme, is designed to automatically transfer funds exceeding a certain limit from a savings account to a fixed deposit (FD). This allows customers to earn higher interest rates, similar to those of a term deposit, on the surplus amount while maintaining easy access to their funds. If the savings account balance falls below the required level, the system automatically transfers funds back from the FD to cover the shortfall; this is known as a "reverse sweep". The transfer happens in multiples of ₹1,000.

How the New Limit Affects Your Savings

With the revised threshold, SBI customers must maintain a minimum balance of ₹50,000 in their savings accounts before the auto-sweep facility is triggered. Previously, this limit was ₹35,000. This change primarily affects customers who maintain balances between ₹35,000 and ₹50,000. These customers will no longer benefit from the automatic sweep of funds into fixed deposits and will instead earn the lower interest rate applicable to savings accounts on that amount.

For customers with higher balances, the MOD facility will continue to function as before, providing a convenient way to earn higher returns without sacrificing liquidity. The surplus funds above ₹50,000 will be automatically converted into fixed deposits, earning the prevailing term deposit interest rate.

Understanding the MOD Scheme

Under the MOD scheme, the amount exceeding ₹50,000 in the savings account is automatically transferred to a fixed deposit. These deposits earn interest equal to the rates of normal term deposits. Interest is added every three months and is paid on maturity. If a customer withdraws money prematurely, a small penalty is charged, but the remaining amount continues to earn interest at the fixed rate. Senior citizens also get the benefit of additional interest on this deposit, as per the bank's rules.

When funds are withdrawn, they are typically taken out in units of ₹5,000 using the last-in, first-out (LIFO) method, though customers can opt for the first-in, first-out (FIFO) method. If the term deposit balance drops to ₹15,000, the entire amount is reversed and credited back to the savings account. Upon maturity, the principal and interest, minus any withdrawals, are automatically transferred to the customer's savings account.

Implications for Customers

The increase in the auto-sweep limit means that customers with balances between ₹35,000 and ₹50,000 will miss out on the opportunity to earn higher interest rates on their savings. This change ensures that smaller balances remain in the savings account and do not get swept into fixed deposits. For those who relied on the auto-sweep facility to maximize interest earnings on moderate balances, this revision may be a disadvantage. However, customers with balances consistently above ₹50,000 will continue to enjoy the benefits of the MOD facility, earning higher interest rates while maintaining access to their funds when needed.