Unexpected financial needs can happen to anyone, such as a major household expense, a medical emergency, children's fees, or an important payment. In such situations, people often break their fixed deposits (FDs), even though this results in a loss of interest and may incur a breaking charge. But did you know that you can arrange for immediate cash without breaking the FD? The easiest and smartest way to do this is through the FD overdraft (OD) facility, which banks readily offer.

This facility not only protects your investment but also protects your wallet by providing funds at a lower interest rate. Let's understand how it works and why it's the best option for sudden financial needs.

What is an FD overdraft?

An overdraft facility means that the bank lends you money against your FD up to a certain limit. This amount is determined based on the value of your FD. It typically ranges from 70% to 90% of the FD. This means that if your FD is worth Rs 2 lakh, the bank can grant you an overdraft of approximately Rs 1.4 to 1.8 lakh.

Why is an overdraft better than breaking an FD?

Breaking an FD stops your investment and results in a loss of interest. Many banks also impose penalties. However, with an overdraft:

The FD remains intact.

It continues to earn interest.

You get instant cash.

You pay less interest because it's considered a secured loan.

This means your FD is safe, and you get the money you need.

How is overdraft interest charged?

The biggest advantage of an overdraft facility is that you pay interest only on the amount you use, not on the entire limit. For example, if your overdraft limit is Rs 1 lakh and you withdraw only Rs 20,000, interest will be charged only on that Rs 20,000. Most banks charge interest rates just 1–2% higher than those on FDs. This rate is significantly lower than personal loans, where interest rates can be as high as 12–20%.

FD Overdraft vs. Personal Loan

Interest rates are low (FD rate + 1–2%) but much higher (12–20%) for personal loans.

Documentation is almost nonexistent for FD overdrafts, but required for personal loans.

Processing time for overdrafts is minutes, while for personal loans it takes several days.

Interest is charged only on the amount used in overdrafts, but on the full amount in PL.

Which banks offer this facility?

Almost all major banks, including SBI, HDFC Bank, ICICI Bank, Kotak Mahindra Bank, Punjab National Bank, Bank of Baroda, etc., offer FD overdrafts. This facility is available on savings FDs, term deposits, tax-saver FDs, and even senior citizen FDs.

What to keep in mind?

The bank determines the OD limit based on the value of your FD.

The interest rate may vary by bank.

Some banks may charge a processing fee for OD.

It is beneficial to make timely withdrawals.

Disclaimer: This content has been sourced and edited from News 18 hindi. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.