Overdraft Against FD: A Smarter Alternative to Premature Closure 

In life, unexpected expenses can crop up at any time. Whether it’s a medical emergency, a home renovation, or a business opportunity, having access to funds is crucial. Many people turn to their fixed deposits (FDs) in such situations, often closing them prematurely. However, there’s a smarter way to access funds without losing the benefits of your FD – an overdraft facility.

An overdraft against your fixed deposit allows you to borrow money using your FD as collateral. This means you can access funds without having to close your FD prematurely, which often comes with penalties and loss of interest. In this article, we’ll explore the benefits of an overdraft against FD and how it compares to premature closure.

Understanding Overdraft Against FD 

An overdraft against FD is a credit facility that allows you to withdraw funds beyond the available balance in your linked savings account, up to a certain limit. This limit is determined by the value of your FD, typically up to 90% of the deposit amount.

For example, if you have an FD of ₹5 lakh, you may be eligible for an overdraft of up to ₹4.5 lakh. The interest rate on the overdraft is usually 1-2% higher than the FD interest rate. So, if your FD earns 6% interest, the overdraft interest rate could be around 7-8%.

Airtel Finance also offers this facility, helping customers unlock liquidity while their deposits continue to grow.

Benefits of Overdraft Against FD 

1. Liquidity without breaking your FD: With an overdraft facility, you can access funds without having to close your FD prematurely. Your FD continues to earn interest, while you have the flexibility to withdraw money as needed.
2. Lower interest rates: Compared to personal loans or credit card debt, an overdraft against FD typically offers lower interest rates. This can help you save on interest costs in the long run.
3. Flexible repayment: Unlike a loan with fixed EMIs, an overdraft allows you to repay as per your convenience. Interest is charged only on the utilised amount, and there are no prepayment penalties.
4. Easy to avail: If you already have an FD with a bank, getting an overdraft facility is relatively simple. Most banks offer online application and quick processing.

Overdraft vs Premature FD Closure 

Let’s compare FD overdraft vs premature closure using an example:

As you can see, with a fixed deposit overdraft, you can access up to ₹4.5 lakh without closing your FD. The FD continues to earn interest, and there’s no penalty for withdrawal. In contrast, if you close your FD prematurely, you lose out on future interest earnings and may have to pay a penalty.

How to Get an Overdraft Against Your FD 

Getting an overdraft against your FD is a simple process:

1. Check your eligibility: Most banks offer overdraft facility to FD holders. Check with your bank for specific eligibility criteria.
2. Apply online or offline: You can apply for an overdraft either through the bank’s website or by visiting a branch. You’ll need to fill out an application form and submit necessary documents such as identity proof and FD receipt.
3. Get approved: The bank will review your application and FD status. Once approved, the overdraft facility will be linked to your savings account.
4. Start using the overdraft: You can start withdrawing funds from your linked savings account up to the overdraft limit. Interest will be charged only on the utilised amount.

Airtel Finance makes this even easier with its streamlined digital application process. Manage your FD, check overdraft eligibility, and unlock funds—without ever leaving your couch.

Making the Most of Your Overdraft Facility

Here are some tips to help you make the most of your overdraft against FD:

• Use it wisely: An overdraft is a credit facility, so use it wisely. Withdraw only the amount you need and repay as soon as possible to minimise interest costs.
• Keep an eye on interest rates: FD interest rates can change over time. Keep an eye on the rates and consider laddering your FDs to benefit from higher rates.
• Plan your repayment: While an overdraft offers flexible repayment, it’s best to have a plan in place. Set aside funds regularly to repay the utilised amount and reduce your debt.
• Review regularly: Regularly review your overdraft utilisation and FD status. Consider increasing your FD amount or linking multiple FDs to enhance your overdraft limit.

If you’re exploring flexible funding options beyond FDs, consider an Airtel personal loan for longer-term financing or check out credit cards offered by Airtel that come with attractive rewards and low interest rates.

An overdraft against FD is a smart way to access funds without losing the benefits of your fixed deposit. It offers liquidity, lower interest rates, and flexible repayment compared to premature FD closure. By understanding how overdraft works and using it wisely, you can make the most of this facility.

If you’re looking to open an FD or explore overdraft options, Airtel Finance offers competitive interest rates and a seamless digital experience. You can easily manage your FDs, check overdraft limits, and access other banking services online, all tailored to your financial needs. Visit the Airtel Finance website today to learn more, make informed decisions, and start maximising your savings with flexible FD options!

FAQs

1. What is the maximum overdraft amount I can get against my FD? 
   Banks typically offer overdrafts up to 90% of the FD amount. For example, if you have an FD of ₹5 lakh, you may be eligible for an overdraft of up to ₹4.5 lakh.
2. Can I get an overdraft against a joint FD?
   Yes, you can get an overdraft against a joint FD, provided all the FD holders agree and sign the necessary documents.
3. What happens if I don’t repay the overdraft amount?
   If you don’t repay the overdraft amount, the bank may charge a higher interest rate or convert the overdraft into a regular loan. In extreme cases, the bank may liquidate your FD to recover the outstanding amount.
4. How is interest calculated on an overdraft against FD?
   Interest is calculated on the utilised amount on a daily basis. For example, if you utilise ₹50,000 for 10 days at an interest rate of 8% p.a., the interest would be: (50,000 x 8% x 10/365) = ₹109.59.
5. Can I increase my overdraft limit later?
   Yes, you can increase your overdraft limit by linking additional FDs or increasing the amount of your existing FD, subject to the bank’s terms and conditions.