A fixed deposit (FD) offers a secure, interest-bearing way to grow your savings and can also serve as collateral for credit. One convenient option is an overdraft (OD) against an FD, which lets you access funds quickly without breaking the deposit. Financial institutions may also allow loans against FDs or provide secured credit cards and overdrafts based on your FD.
Compared with an unsecured personal loan, an OD against an FD is typically more affordable and flexible. Understanding how an overdraft against an FD works will help you evaluate options and choose the best way to meet short-term liquidity needs.
What is OD against FD?
An overdraft against an FD is a credit facility where you pledge your fixed deposit as security and the bank or lender sanctions a percentage of the FD amount as an overdraft limit. Most banks offer between 85% and 95% of the FD value as the overdraft limit, depending on their policy.
For example, if you have an FD of ₹2 lakh and the bank approves an OD equal to 90% of that amount, you can draw up to ₹1.8 lakh without breaking the FD. This remains a secured facility because the FD serves as collateral, but the interest calculation differs from an EMI-based loan: you pay interest only on the amount actually withdrawn and only for the period you use the funds.
So, if your OD limit is ₹1.8 lakh but you withdraw ₹1 lakh and use it for five months, you owe interest only on ₹1 lakh for those five months. Another advantage is that many banks allow you to close the OD at any time without prepayment penalties, subject to their terms.
Who Can Apply for It?
To apply for an overdraft against an FD, you generally need to meet these conditions:
- You must be the primary holder of the FD.
- The FD must meet the bank’s minimum amount requirement.
- The remaining tenure of the FD should satisfy the lender’s criteria.
- The FD will be marked with a lien while the OD is active.
- Your KYC must be complete and up to date.
- The FD should not already be pledged for another credit facility.
Certain deposits are typically ineligible for an overdraft:
- Fixed deposits held for minors.
- Five-year tax-saving fixed deposits.
Loan Limit on Overdraft against FDs in India
The percentage of the FD value that a bank will allow as an overdraft varies. Typical limits offered by major Indian banks include:
| Bank | Overdraft Limit |
|---|---|
| State Bank of India | 90% of the FD value |
| ICICI Bank | 90% of the FD value |
| Bank of Baroda | 90% of the FD value |
| Axis Bank | 85% of the FD value |
| HDFC Bank | 90% of the FD value |
| Citibank | 90% of the FD value |
| Kotak Mahindra Bank | 90% of the FD value |
| Yes Bank | 90% of the FD value |
| Punjab National Bank | Minimum ₹25,000 to maximum ₹50 lakhs |
Disclaimer: Information is current as of November 2024 and may change based on bank policies. Confirm details with the bank before applying.
How to Apply and Close Your OD against FD
You can typically apply for an OD against an FD online or at a branch. A standard online process is:
- Log in to internet banking.
- Navigate to the Fixed Deposit section.
- Select the option to open an OD against FD.
- Enter the overdraft amount and required details.
- Follow the on-screen instructions and accept terms and conditions.
For an offline application, visit your bank branch, submit the completed form and provide the FD receipt. After approval, the sanctioned amount is credited to your account.
To close the overdraft and remove the lien from your FD, follow these general steps:
- Repay the outstanding OD amount within the chosen tenure.
- Verify the final statement to ensure the balance is zero.
- Submit a closure request with required documents.
- Wait for the bank to release the lien on the FD.
- Receive a confirmation letter from the bank indicating closure.
While an OD against an FD is quick and flexible, review the product details carefully to understand applicable interest rates and charges. When booking an FD, consider a bank that offers a higher overdraft percentage if you want stronger liquidity backup for emergencies.
FAQS on Overdraft against Fixed Deposit
Can I take an overdraft against a joint fixed deposit account?
Yes, an overdraft can generally be taken against a joint FD if the account holders meet the bank’s criteria. Exceptions include FDs held by minors and five-year tax-saving FDs, which are usually ineligible.
What happens to my fixed deposit if I fail to repay the overdraft?
If you fail to repay, the lender will typically apply interest and penalties. Continued default can lead the bank to encash or liquidate the FD to recover the outstanding amount, in accordance with the terms agreed at the time of sanction.