FD Overdraft: Unlock Extra Cash From Your Fixed Deposit

Many individuals face a common issue during sudden emergencies and other financial crises. They often have to withdraw their savings and break their FDs or fixed deposits to meet these needs. However, not only does this stop the investment, but it also leads to penalties and charges for premature withdrawals and loss of future interest income. Overdrafts on regular or senior citizen FDs can help you overcome this problem should it arise again. Let us learn more about it in this article. 

What is an Overdraft Against FDs? 

Be it a senior citizen fixed deposit scheme or an FD for those below 60, you can avail of an overdraft against the same to get funds urgently for diverse purposes (provided your bank offers this facility). An overdraft is where you can borrow money up to a specific limit on the value of your FD without breaking it before the maturity date. The banks, both traditional and small finance banks, will charge loan interest only on the amount you withdraw, while the fixed deposit will keep earning interest. 

Benefits of Overdraft Against FDs

Here are some key benefits of overdrafts against fixed deposits: 

• You can get funds urgently to meet medical costs, family expenses, or other requirements without breaking your FD or withdrawing other investments. 

• You can avoid paying premature withdrawal penalties that would have accrued if you had to break your fixed deposit. 

• Your FD keeps earning interest, and you can thus avoid a situation where you have to prematurely stop your investments and lose out on interest income in the future. 

• Banks charge interest only on the amount you withdraw, while these rates are usually quite competitive. It makes an overdraft a good option for instant liquidity as compared to credit cards or other high-interest debt. 

Let us now look at some aspects that you should keep in mind before selecting this feature. 

Factors Worth Noting Before Choosing the Overdraft Facility 

Here are the things that you should note before selecting an overdraft against your FD. 

• Check the interest rate charged by the lender on the borrowed amount and compare it with the interest that you earn on your FD. Make sure that it is competitive and affordable. 

• Examine the terms and conditions of the overdraft with care, including any additional charges, the maximum or minimum limits for withdrawals, tenure and terms of repayment, and the conditions for renewal. 

• Understand how the overdraft will impact your FD’s principal amount, overall interest earnings, and the date of maturity. 

• Look for any prepayment charges that will apply in case you repay the overdraft amount before the conclusion of the agreed tenure. 

Conclusion 

Once you assess all the factors given above and find the overdraft to be a viable option for your financial needs, create a proper repayment plan that takes your income and projected cash flows into account. Repay the loan in a timely manner and do not borrow more than what you need. Also check the eligibility criteria carefully, since these facilities are usually not available for those who have 5-year tax-saver FDs. With proper financial planning and management, an overdraft against your FD can be a lifesaver in times of financial crisis. You can flexibly repay the amount as per the agreed terms and conditions. In fact, once you clear off the overdraft amount, you may be able to get the funds again in the future based on your credit limit.