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An overdraft facility is a credit arrangement between a bank and an account holder that allows them to spend or withdraw more money than they have in their account up to the allowed amount. The bank charges a predetermined rate of interest on the overdraft amount used by the borrower. Interest is computed on a daily basis and billed/debited to you monthly. If you fail to pay the overdraft amount on time, the interest rate increases.

What is Overdraft Against FD?

A fixed deposit is one of the most prominent kinds of investments since it can be used to meet both short and long-term financial requirements. You can also withdraw your FD funds prematurely in the form of an overdraft against FD in the event of a financial emergency. However, in order to do so, you are required to pay a penalty. OD against FD is one of the easiest methods to borrow money from the bank. Your fixed deposit investment is utilized as security in this facility, and the money is subsequently given to you as an overdraft.

 

You may save yourself from paying a penalty by using the overdraft against FD facility. In this facility, you can acquire a loan against your fixed deposit. You may cover your unexpected costs while still earning money on your FD by taking out an OD against it.

 

Banks often allow up to 90% overdrafts against FD value. Another intriguing feature of this credit facility is that the applicable overdraft interest rates are just 1-2% higher than the underlying FD interest rate. Furthermore, you will be charged interest only on the value used from the OD, not the entire amount.

 

With the overdraft against FD option as a liquidity solution, you may deposit the entire due amount whenever you choose. An overdraft's tenor is determined by the loan's maturity time. When the FD is renewed, the bank allows the overdraft facility to be renewed as well. You may easily obtain this service online using your banking account, or you can apply in person by visiting your bank’s branch.

Eligibility Criteria to Get an Overdraft Against FD

The most essential requirement for obtaining an overdraft against a fixed deposit is that you must have a fixed deposit account with the bank or financial institution from which you wish to obtain the facility.

 

Apart from this, to obtain OD against FD, you must be one of the following:

 

  • An Indian citizen or NRI above 18 years

  • Members of HUF (Hindu Undivided Family)

  • Partnership Firms

  • Family Trusts

  • Corporations

  • An Association

  • Educational Institutions

  • Societies

  • Clubs

Here's another list that will assist you in understanding the eligibility criteria.

 

  • Holders of individual and combined fixed deposit accounts can opt for this facility.

  • FD in the name of a minor can’t be utilized for an overdraft facility.

  • FD account holders having a 5-year tax saver are not eligible for this facility.

Benefits of an Overdraft against FD

Here are multiple benefits of an overdraft against FD.

1. Lower Rate of Interest

Overdraft against fixed deposit interest rate is cheaper when compared to other forms of loans. The interest rate on this facility is usually 1-2% higher than the interest rate on fixed deposits. For a better understanding, you may use the OD against FD calculator available on the financial institution’s website to get an accurate result.

2. Flexible Payback Duration

The tenor of your OD against FD is the same as the fixed deposit's term. For example, if your fixed deposit is for five years, your loan payback period will be five years as well. However, you should keep in mind that the loan payback duration might be shorter than, but not greater than the tenor of the FD.

3. Quick and Easy Application Process

The application procedure of applying for an overdraft against FD facility is simple and hassle-free. If you already have an FD account, you don't have to go through the time-consuming documentation process. As a result, your time and effort will be saved. All you have to do is to fill out the application form and provide the asked details for an overdraft against FD. You can do so through your net banking account or by visiting the institution’s branch.

4. No Need to Pay Penalty

In the event of financial emergencies, you prematurely break your FD and end up paying a penalty. By using an OD against FD credit facility, you will be saved from this and can also fulfill all your financial commitments.

5. Zero Processing Fee

To procure this service, you are not required to pay any processing fee. As a result, your overall loan cost will be reduced.

How to Apply for an OD Against FD?

You can apply for this credit through online or offline mediums.

1. Online Medium

Here are the steps to follow.

 

  • Log in to your net banking account using your credentials.

  • On the main tab, go to the ‘ Fixed Deposit’ menu.

  • Choose the ‘Overdraft facility against FD’ option.

  • Fill in the form and provide the details like the required amount, tenure, etc and so on.

  • Next, submit the form.

  • Following that, your bank will process your request and approve it within a few days.

  • Once approved, the amount will be transferred to your account.

2. Offline Medium

Here are the steps to follow.

 

  • Visit the financial institution’s branch.

  • Ask for the form from officials.

  • Fill in the form carefully and provide details like the required amount, payback tenure, and so on.

  • Submit it along with the supporting documents.

  • After that, your request will be processed.

  • It may take up to a few days to receive the approval.

  • After approval, the funds will be transferred to your account.

How to Close Overdraft Against FD?

You can close the overdraft against FD once you have repaid the whole amount by visiting the financial institution’s branch. You may also do so through your net banking account.

FAQs on OD against FD

  • ✔️What is an overdraft against FD?

    OD against FD is one of the easiest methods to borrow money from the bank. Your fixed deposit investment is utilized as security in this facility, and the money is subsequently given to you as an overdraft. Banks often allow up to 90% overdrafts against FD value.

  • ✔️What is the carpet area according to RERA?

    Following is the list of documents for an overdraft on FD.

    • Duly filled application form

    • Receipt of FD

    • Cancelled cheque

  • ✔️How much money can I borrow against a fixed deposit?

    Banks can typically lend between 70% and 90% of the fixed deposit amount.

  • ✔️How much processing fee do I have to pay for an OD against FD?

    You are not required to pay any processing fee as this credit facility is exempted from processing charges. 

  • ✔️Who is eligible for an OD against FD?

    To obtain OD against FD, you must be one of the following:

    • An Indian citizen or NRI above 18 years

    • Members of HUF (Hindu Undivided Family)

    • Partnership Firms

    • Family Trusts

    • Corporations

    • An Association

    • Educational Institutions

    • Societies

    • Clubs

  • ✔️How much interest rate do I need to pay for overdraft against FD?

    Overdraft against fixed deposit interest rate is cheaper when compared to other forms of loans. The interest rate on this facility is usually 1-2% higher than the interest rate on fixed deposits.