What is Overdraft Against Fixed Deposit?

When you need urgent funds but don’t want to break your fixed deposit (FD), there’s a smart solution: Overdraft against Fixed Deposit. Instead of liquidating your investment, you can borrow funds against it. This option provides quick access to funds without compromising the interest your FD continues to generate.

In this article, we explore what is overdraft against fd, overdraft against FD meaning, overdraft against fd example, how the process works, eligibility, its benefits, and what to consider before choosing this route. 

How Does Overdraft Against FD Work?

Here’s how the overdraft facility against your fixed deposit works:

1. You approach your bank where your fixed deposit is held.
2. The bank sets an overdraft limit, generally 75% to 90% of your FD value.
3. Once approved, the amount is credited to your savings account or linked OD facility account.
4. Interest is charged only on the amount you actually use, not the full limit sanctioned.
5. You can withdraw funds any time within the tenure of the FD.
6. You repay the amount as per your convenience—monthly or lump sum—without any prepayment penalty in most cases.

This arrangement ensures that you continue to earn on your fixed deposit, even as you benefit from instant liquidity.

For example, if you have a ₹2 lakh fixed deposit FD, and the bank offers a 90% overdraft facility, you may get an overdraft amount of ₹1.8 lakh. If you withdraw ₹50,000, interest is charged only on that amount.

This form of financing is available with several financial institutions that offer competitive fixed deposit interest rates. Platforms like Torus Digital provide a seamless digital experience for opening and managing FDs.

Eligibility for an Overdraft Against FD

Most banks have straightforward eligibility requirements for this facility:

• You must hold a fixed deposit FD with the bank.
  
• The FD must not be in the name of a minor (unless a guardian manages the account).
  
• Joint FD holders must authorise the overdraft collectively.
  
• The FD must have a minimum tenure, usually at least 6 months.
  
• The facility is available for individual, joint, HUF, and even company account holders.

Advantages of Overdraft Against FD

Opting for an overdraft instead of liquidating your FD comes with multiple benefits:

• Instant Liquidity: Quick access to cash during emergencies.
  
• No Need to Break Your FD: Your investment remains intact.
  
• Interest Only on Used Amount: Unlike personal loans, you pay only on what you use.
  
• Continued Returns: You continue to earn interest on your FD during the overdraft period.
  
• Lower Interest Rates: Banks typically offer lower interest rates for overdrafts than for unsecured loans.
  
• No Prepayment Charges: You can repay early without penalty.
  
• Easy Process: Minimal documentation if you already have an FD with the bank.

This makes it ideal for short-term financial needs like paying tuition fees, business expenses, or medical bills without disturbing long-term savings.

Things to Consider for Overdraft Against FD

While this facility is flexible, there are important aspects to keep in mind:

• Overdraft Limit: You cannot borrow more than the set limit, generally 75–90% of the FD value.
  
• Repayment Discipline: You must manage repayments timely to avoid interest build-up.
• FD Lien: The FD is lien-marked, which means it can’t be used or closed without repaying the overdraft.
• Maturity Handling: Upon FD maturity, the bank may settle the outstanding OD automatically.
• Non-renewable: FDs under lien often can’t be auto-renewed.
• Taxation: Interest income from FD remains taxable even while availing of the OD facility.

Make an informed decision by assessing the interest is charged on the OD vs your FD returns. If your FD earns 6.5% and the OD rate is 7.5%, your net cost is very low.

Conclusion

An overdraft against a fixed deposit offers a win-win situation. You get access to funds in times of need without losing out on the benefits of your ongoing FD. With flexible limits, lower interest rates, and no prepayment penalty, it serves as a smart financial cushion.

Rather than opting for costly personal loans, leveraging your FD is often a more practical solution. Just be sure to understand your bank’s terms and use this facility responsibly.

To make your money work smarter, explore platforms like Torus Digital, which offer both fixed deposit services and access to an online investment platform. You can also open demat account and open trading account through their integrated 3 in 1 account—giving you flexibility across savings, investing, and trading.