Overdraft against FD

Fixed Deposit is one of the financial instruments provided by the Banks or Non-Banking Financial Companies (NBFCs) to customers. Overdraft facility provides a higher interest rate until the maturity date than the regular savings account.

Overdraft facility is availed when an individual entrepreneur or businessman does not have enough funds to pay the unexpected contingencies, but can still get cash credit from the lender based on their creditworthiness.

In this, we are going to discuss, availing overdraft facility against Fixed Deposits maintained by the customers. This facility is available only for the ultimate customers having such FD account with the respective bank on a single basis, without any joint holding.

Features of Overdraft against FD

• The Overdraft facility can be availed only by individuals having TDR, STDR, eTDR, eSTDR in their names along with a Savings/ Current account with the respective lending institution
• Overdraft on the current account is accessed by businessman and overdraft on a savings account is accessed by the salaried class
• Lien on the Fixed Deposit is enforced favoring the lending bank
• The bank regulates the FD account in such a way that it automatically gets renewed at the prevailing rate on the maturity date
• The limit of overdraft remains the same irrespective of the auto-renewal of the FD
• Withdrawal or transfer of funds from the account can be done through internet banking or even cheque book, as per the prescribed transaction rights
• Sweep in facility can be opted to earn higher interest, as any deficit in savings or current account is duly taken from the funds available in the Fixed Deposit (FD)

The following aspects are also prescribed by the Banks & NBFCs:

• Minimum and maximum amount
• Tenure
• Maximum loan period
• Eligible Fixed Deposit
• Margin
• Rate of Interest

Procedure to avail the e-OD facility against FD

The customer has to login their Retail Internet Banking and under the option ‘Manage accounts’, they can opt for ‘Open OD against FD’. Then they have to select the Overdraft account against which they would like to avail the Overdraft facility.

Then, they have to enter the desired amount of overdraft, which is usually less than the actual FD. The System will show the amount, the individual is eligible for. Finally, after going through the terms and conditions, they can click on agree option to go ahead with the overdraft facility.

ECS is thus mandatory for availing the facility for non-cumulative FD.  Cancelled cheque should also be submitted for the same. The system will eventually generate the Customer OD Account Number.

Additional Features

Interest Rate

The interest rate on such Overdrafts is higher than the bank rates for the fixed deposits. Thus, the overdraft limit changes with respect to the bank, as well as the tenure of such overdraft.

The interest is paid back only on the amount withdrawn. The remaining amount in the account will continue to earn the present interest.

Maximum Ceiling on the Overdraft

The maximum limit on the overdraft would generally be 80% to 85% of the amount maintained in the Fixed Deposit. It is thus a hassle-free option to get cash at a quicker pace.

Tenure of the Overdraft

 It mainly depends on the maturity of the Fixed Deposit. If an individual continuously defaults, then the same will be adjusted against the Fixed Deposit.

Less Paperwork and Hassle-free Process

It does not require much paperwork and the norms to be followed in availing the facility are simple and minimal.

Repayment Schedule

An appropriate repayment schedule is enunciated depending on the creditworthiness and ability of the borrower. The limit on the maximum repayment period is dynamic and changes from bank to bank.

Foreclosure of the overdraft account

Banks do not enforce any sort of penalty in case of foreclosure of the overdraft facility against the Fixed Deposits.

Difference between an Overdraft Facility and a Loan

A loan has to be repaid in the prescribed EMIs or in a lump sum as the case may be. But an overdraft continues for a long run till it is recalled.  The overdraft facility is thus user-friendly and convenient than the loan option.

The major advantage of availing the overdraft facility against the fixed Deposit is that the individual continues to earn the interest on the Fixed Deposit along with availing funds against the same.

Terms and Conditions

• Multiple combinations of FDs are not permitted for availing the overdraft facility
• E-OD limit will be fixed by the system as such after checking the fixed margin
• Withdrawal cannot be done in a partial manner.
• Till the maturity of the FD, closure of e-OD account cannot be strictly done
• Third party advance is clearly prohibited
• Such overdraft facility can be availed by a minor only under the due supervision of a natural guardian or guardian appointed by the court. A clear undertaking from the said guardian is required in this case
• No pre-payment charges are required for closing an overdraft