Liquidating your Fixed Deposit (FD) when you are in need of money is not a profitable decision because if you do so, you lose out on the interest and also end up paying a penalty amount. Once the FD is liquidated, the bank pays interest at a rate that is lower among the rates at which the FD was approved and the rate of interest on the day of liquidation.
To save yourself from these financial hassles and fulfill your emergency cash needs, State Bank of India provides the facility to avail a loan against your FD. This is a good option as it ensures that the benefits you derive from the Fixed Deposit account stay intact, and offers the loan at a comparatively lower rate of interest.
Another benefit of the overdraft against fixed deposits is that the borrower keeps on earning interest on his existing fixed deposit scheme even if the loan has been sanctioned by the bank. This interest can be used for the prepayment of the loan as the bank also does not levy any foreclosure charges in case the loan is repaid before the tenure of the overdraft ends.
SBI’s Loan Against Fixed Deposit
State Bank of India is the largest bank of India on the basis of its assets, and is reputed for its convenient and popular banking solutions. It also has a dense web of branches and ATMs that span all over the country.
State Bank of India’s interest rates on loan against fixed deposits are relatively lower than the interest rates charged on normal loans, be it a personal loan or any other kind of loan. The reason behind this reduction in interest rate is that the loan against fixed deposit is a type of secured loan as the FD acts as collateral in this case.
Salient Features of SBI’s Loan Against Fixed Deposit
Single or joint account holders holding SBI’s Fixed Deposits are eligible to avail this loan. Single account holders can also get overdraft facility through net banking against their TDR and STDR. In case of joint holders, each and every member has to approve the loan request before the application is processed by the bank. In case the request application is not signed by even one of the members, the bank can disapprove the application and loan would not be sanctioned.
2. Minimum & Maximum Loan Amounts
For online overdraft against an FD, the maximum amount that can be withdrawn is Rs. 25,000. And the cash limit for this overdraft facility is Rs. 5 Crore. The amount however, should not exceed 90% of the total sum invested in the FD scheme.
3. Loan Margin
A Fixed Deposit holder can avail a loan of up to 90% of the value of the deposit. However, if the loan amount exceeds Rs. 5 Crores, the loan would not be sanctioned.
4. Processing Fee
Banks charge a percentage of the loan amount as the processing fee for sanctioning the loan. But most banks do not charge this fee if it is for overdraft against fixed deposits. State Bank of India also does not charge any processing fee for availing this loan facility.
5. Interest Rate
Interest rates for different FD schemes vary from one another. Hence, the rate of interest charged for loan against FDs for one person is different from the interest rate charged from another person who has applied for the same amount of loan if rates of interest on FD for both customers are not same.
The rate of interest levied on this loan is 1% above the relative fixed deposit rate. As the borrower already has an existing relationship with the bank and the loan also falls in the secured category, the bank charges relatively lower interest from the applicant.
6. Period of Repayment
The repayment time depends upon the repayment capacity of the borrower and is fixed accordingly. Further, the maximum repayment time has been set at 5 years against STDR/e-STDR and 3 years against TDR/e-TDR respectively for overdraft availed online. However, if the applicant wants to pay back the loan before the term ends, he is charged no extra amount as prepayment charge.
In case of overdraft against e-STDR/STDR, 5 years or the residual period (a minimum of 6 months), whichever is less, is considered as the maximum repayment period.
For overdraft against e-TDR/TDR, the maximum repayment period is 3 years or the residual period, whichever is less. However, this period cannot be less than six months.
For all loans against fixed deposits that are sanctioned at the branch, appropriate tenure is fixed by the bank depending upon the repayment capability of the debtor.
7. Mode of Repayment
The repayment can be done at an SBI Branch or through internet banking. You can check the IFSC of SBI branch at Paisabazaar.com.
Make sure to repay the loan against your fixed deposit on time otherwise the bank has the authority to terminate your deposit to recover the debt amount as the fixed deposit acts as collateral in this case
Benefits of SBI Loan Against Fixed Deposit
- You are entitled to avail a loan of up to 90% of the value of your fixed deposit.
- Interest rates are low.
- The interest is charged on a daily reducing balance.
- Both demand loan and overdraft facility is available according to the account holder’s requirement.
- There is no processing fee charged for availing this loan facility.
- Also, no penalty is charged if the beneficiary pays the complete loan amount in advance.
How to apply for SBI’s Loan Against Fixed Deposit
The applicant can apply for a loan against fixed deposit by either logging in to his internet banking profile and applying for the loan through the Overdraft against FD link under the e-Fixed Deposit tab or by visiting the bank and applying for the overdraft on the spot. In case of joint holders of the FD, all applicants need to sign the loan request. Hence it is advisable for all holders to visit the bank and request for the loan and conduct the proceedings in a transparent manner.