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• Option for Amount in Fixed Deposit
• What is an overdraft?
• Cash is not a problem

Unexpected financial needs can happen to anyone, such as a major household expense, medical emergency, child support, or an important payment. In such situations, people often withdraw their fixed deposits (FD) break, although this incurs a loss of interest and may incur a breaking charge. But did you know that you can arrange instant cash without breaking the FD? The easiest and smartest way to do this is through FD Overdraft (OD) facility, which banks offer easily.

This facility not only protects your investment but also protects your wallet by providing funds at low interest rates. Let’s understand how it works and why it is the best option for sudden financial needs.

What is FD Overdraft?

Overdraft facility means that the bank allows you to FD A bank lends money up to a certain limit. This amount is decided based on the value of your FD. It usually ranges from 70% to 90% of FD. This means that if your FD is worth Rs 2 lakh, the bank can give you an overdraft of approximately Rs 1.4 to 1.8 lakh.

Interest rates up to 8.50 percent on FDs with ‘these’ banks including SBI, see complete list

Why is overdraft better than breaking FD?

Closing the FD stops your investment and results in loss of interest. Many banks also charge a penalty. However, with an overdraft:

• FD remains intact
• It keeps getting interest
• You get quick cash
• You pay less interest because it is considered a secured loan

It means your FD is safe and you get the money you need.

How is overdraft interest charged?

The biggest advantage of overdraft facility is that you pay interest only on the amount you use and not on the entire limit. For example, if your overdraft limit is Rs 1 lakh and you withdraw only Rs 20,000, interest will be charged only on that Rs 20,000. Most banks charge only 1-2% more than the interest rates on FDs. This rate is much lower than personal loans, where interest rates can be as high as 12-20%.

FD Overdraft vs Personal Loan

• Interest rates are low (FD rate + 1-2%) but very high (12-20%) for personal loans.
• Documents are almost non-existent for FD overdrafts, but are required for personal loans
• Processing time for overdrafts is minutes, while personal loans take days
• Interest is charged only on the amount used for overdraft, but on the full amount for PL

Which banks offer this facility?

Almost all major banks offer FD overdraft including SBI, HDFC Bank, ICICI Bank, Kotak Mahindra Bank, Punjab National Bank, Bank of Baroda etc. This facility is available on savings FDs, fixed deposits, tax-saving FDs and even senior citizen FDs.

‘These’ banks are offering highest interest on FDs; How fair is it to bet? find out

What are the things to keep in mind?

• The bank decides the OD limit based on the value of your FD
• Interest rates vary depending on the bank
• Some banks may charge a processing fee for OD
• Timely withdrawal is beneficial.