Overdraft Against Fixed Deposit: Know Its Meaning And How To Apply

A fixed deposit comes with a lot of benefits, acting as a lucrative tool to invest your savings securely while generating interest. In addition, it can also help you in arranging funds for financial emergencies or to build your credit score via a loan against FD or a secured credit card. Financial institutions also offer an overdraft against FD.  

This is an affordable alternative to getting a personal loan, which you can use without any restriction. By understanding what OD against FD means, you can compare options and choose the best one.  

What is OD against FD?

Having an FD account enables you to take different types of credits against it. One such option is an overdraft (OD) facility. Getting an overdraft on a fixed deposit requires you to pledge your FD, and the financial company will sanction 90% to 95% of your FD amount as credit.

To understand the process better, say you have an FD of ₹2 lakhs, and you need immediate funds. Instead of getting a loan, you apply for an overdraft facility where the bank is offering 90% of your fixed deposit as OD. Since 90% of ₹2 lakhs is ₹1.8 lakhs, you get the amount instantly without breaking your FD.  

This is a secured credit option where you will have to use your fixed deposit as collateral. However, unlike other secured loans, you don’t repay in full EMIs. It also does not attract interest on the total loan amount. Instead, you will have to pay interest only on the borrowed amount for the duration for which you are using the funds.  

Assume you have access to an overdraft of ₹1.8 lakhs, but you only used ₹1 lakh for 5 months. In this case, you only have to pay interest on ₹1 lakh for 5 months. Another noteworthy feature is that you can close your OD anytime without any prepayment charges. 

Who Can Apply for It?

To avail of this facility, you need to meet the following requirements:

• You must be the primary FD account holder
• The FD should meet the minimum amount criteria set by the bank
• The FD tenure should match the requirements of the financial institution 
• The FD will be marked with a lien
• Your KYC should be completed
• The FD should not already be pledged as security for another type of credit 

There are two types of deposits that are ineligible for OD: 

• A fixed deposit for a minor 
• A 5-year tax-saver FD

Loan Limit on Overdraft against FDs in India

When it comes to making the most of this facility, getting the maximum credit is valuable. Here’s a list of India’s most popular banks and their limit on overdraft against FD.

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: These details are current as of November 2024 and are subject to change as per the bank’s policy. Check the latest information before you apply for it.

How to Apply and Close Your OD against FD

To successfully apply for overdraft against FD, you can follow these steps: 

1. Open your internet banking
2. Log in with your credentials
3. Go to the ‘Fixed Deposit’ section
4. Select ‘Open OD against FD’
5. Enter your overdraft amount and other details  
6. Follow the instructions as mentioned on the dashboard 
7. Read and agree to the terms and conditions

For the offline application, visit the bank branch to fill out the form. After that, you must provide your fixed deposit receipt. On approval, the amount will be credited to your account.

The process doesn’t end here as you must also close your overdraft on a fixed deposit and remove the lien marking from your FD. For that, you need to follow these steps:

1. Repay the outstanding amount within the selected tenure
2. Check the final statement and confirm the outstanding balance is zero
3. Submit your closure request along with the mandatory documents
4. Wait for the bank to release the lien from your FD
5. Receive confirmation letter from the bank  

While this option is a quick and easy solution to get credit, read all the product details carefully, as you have to pay interest. If you are looking to book an FD, choose the financial institution offering maximum overdraft on a fixed deposit to put yourself in a better position to address an emergency.

FAQS on Overdraft against Fixed Deposit

Can I take an overdraft against a joint fixed deposit account?

Yes, you can take an overdraft against FD with joint account holders. There are only two limitations to this, which are:

• A minor fixed deposit account holder cannot get an OD
• 5-year tax-free FDs are not eligible 

What happens to my fixed deposit if I fail to repay the overdraft?

Initially, the lender will add interest to your fixed deposit. In case you still cannot pay the borrowed amount, the lender may have to take strict action leading to dissolving your FD to recover dues.