MOD stands for Multi Option Deposit in banking. It is a special type of fixed deposit (FD) linked to a savings or current account that allows customers to enjoy the benefits of both liquidity and higher interest rates. Banks automatically break a portion of the fixed deposit whenever the account holder needs funds, ensuring smooth transactions without penalty. MOD is widely used by customers who want flexibility along with assured returns.
What Is an MOD in Banking?
A Multi Option Deposit is a term deposit created by the bank when a customer opts for an auto-sweep facility. In this system, any amount above a predefined limit in the savings or current account automatically moves into an FD as an MOD. This deposit earns interest at FD rates, which are higher than normal savings account rates.
The unique feature of MOD is that the bank can break the deposit partially when required, instead of withdrawing the entire FD. This ensures that customers continue earning interest on the remaining amount.
How Does MOD Work?
MOD works through an auto sweep-in and sweep-out mechanism:
- When the balance in the savings account exceeds a set limit, the extra amount is transferred to MOD.
- If the customer issues a cheque, makes a withdrawal, or performs a transaction that requires more funds than available in the savings account, the bank automatically pulls (sweeps out) the required money from the MOD.
- Only the needed part is broken, and the rest continues to earn FD interest.
This makes MOD an excellent choice for maintaining liquidity without compromising on returns.
Benefits of MOD in Banking
1. Higher Interest Earnings
The amount transferred under MOD earns interest similar to fixed deposits, helping customers grow their funds faster.
2. Flexibility in Withdrawals
Customers can withdraw money anytime without breaking the entire deposit, making it a stress-free option.
3. Automatic Fund Management
The sweep-in and sweep-out system reduces manual effort and ensures optimal use of funds.
Conclusion
The MOD (Multi Option Deposit) facility is ideal for customers who maintain higher balances and want to maximise earnings without losing access to their money. It combines the advantages of savings accounts and fixed deposits, offering both liquidity and attractive interest rates.