Are you Eligible for Overdraft against your Fixed Deposit?

We’ve all faced situations where liquidity issues arise, whether it's for a medical emergency or to cover unexpected expenses. These moments demand quick solutions, and an overdraft against your fixed deposit (FD) can provide immediate financial relief. You won’t have to disrupt your savings as you do not have to break your FD prematurely. You can get money fast without any hassle.  

What is overdraft against fixed deposit?

Overdraft against fixed deposit is a feature that allows an FD account holder to obtain an overdraft of up to 90% of the FD value. Interest rates on ODs are normally higher than those on FDs. An overdraft facility allows you to pay your expenses while earning on your FD. This makes it one of the lowest interest-rate loan alternatives available compared to others.

Main features of overdraft against fixed deposit:

• Low interest rates

The interest rate on an overdraft against an FD is typically much lower than other types of loans, as the FD acts as collateral. You’ll usually pay around 1-2% more than your FD interest rate.

• Minimal documentation

There is little to no paperwork involved with obtaining an overdraft against your FD, which serves as collateral. Furthermore, having FD in a bank means you already have a relationship with that bank, which speeds up the loan process. Plus, you also have the option to enable it online, making the process easier.

• Flexible repayment

There are no fixed monthly payments or EMIs. You only pay interest on the amount you use, and you can repay the borrowed amount at your convenience.

• Continued interest on FD

Even while you’re using the overdraft, your FD continues to earn interest, which helps maintain your savings growth.

• No impact on credit score

Since the overdraft is secured by your FD, it doesn’t heavily affect your credit score as long as you manage it responsibly.

Who is eligible to avail overdraft against fixed deposit?

1.     Should hold an active fixed deposit

You must have an FD account with the bank offering the overdraft facility. This can be in either your name or jointly held with someone else.

2.     Should meet the minimum age requirement

You must be at least 18 years old to avail of this facility. Minors cannot apply for an overdraft against their FD.

3.     Have a valid ID and address proof

You need to provide valid identification and proof of address when applying. This is standard for most banking products.

4.     Should be a non-tax-saving FD

You cannot use a tax-saving fixed deposit (FD) for an overdraft facility. Banks only allow overdrafts on regular FDs, not the ones designed for tax-saving purposes.

Who can avail OD against FD?

The following groups are eligible to apply for an overdraft against their fixed deposit (FD):

• Any Indian resident or Non-Resident Indian (NRI) aged 18 and above can access this facility.
• Hindu Undivided Families (HUFs) can take advantage of an overdraft against their FDs.
• Both charitable and private trusts are eligible.
• Both private and public companies can have easy access to liquidity.
• Registered clubs can also avail of this service.
• Recognised societies and associations are eligible for the facility.
• Registered educational institutions can apply for overdrafts using their FDs as collateral.

When should you opt for overdraft against fixed deposit?

Here’s a list of scenarios where opting for an overdraft against your FD makes perfect sense:

a)     During a medical emergency

When unexpected medical bills arise, tapping into an overdraft ensures quick funds without disrupting your savings. Plus, the lower interest rates compared to personal loans make this option cost-effective.

b)     Handling temporary cash crunch

If your salary is delayed or your business faces short-term liquidity issues, an overdraft against FD provides immediate financial relief without having to break your investment.

c)     Access to lower interest rates

Compared to other borrowing options like personal loans or credit cards, the interest rate on an overdraft against FD is much lower, helping you save on interest payments.

d)     Business needs

Small business owners or self-employed individuals can use an overdraft to handle urgent expenses, like paying suppliers or employees, without having to take a formal loan.

Make the most of OD against FD facility

The overdraft against a fixed deposit (FD) facility is a valuable tool for addressing short-term financial needs without sacrificing your savings. This facility gives you even more financial freedom. It is available across small finance banks, public sector banks and private banks. The service ensures that a wide range of depositors can access quick liquidity while keeping their long-term financial goals intact.

Unity Small Finance Bank provides fixed deposits (FDs) with a variety of benefits, making it an appealing choice for investors. The minimal deposit amount is ₹1,000 and the tenure is fairly variable, ranging from 7 days to 10 years. This allows you to select a plan that meets your financial objectives.

Unity Small Finance Bank also allows for early withdrawal, at a 1% penalty on the interest rate may apply in such instances. Furthermore, the bank offers an overdraft facility against FDs, which ensures liquidity without breaking the deposit. So, take use of the services and continue generating interest on your FD while easily meeting your short-term financial demands.