Overdraft Against Fixed Deposit: Know its meaning & how to apply

A Fixed Deposit is one of the most trusted ways to save and grow money securely. However, there are times when you may require funds urgently but do not wish to break your deposit. In these circumstances, an overdraft against the Fixed Deposit can be useful. You can borrow against your deposit and still earn interest on it.

What is an Overdraft Against a Fixed Deposit?

An overdraft against a Fixed Deposit is a facility where banks let customers borrow funds using their deposit as security. You can use your deposit as collateral to avail a credit limit, avoiding early withdrawal penalties and loss of interest.

The credit offered is usually a percentage of the deposit value. For instance, if your FD is worth ₹5 lakh, you might be able to get an overdraft of up to 90% of that amount. This makes it a flexible choice for handling unexpected money requirements.

How Does the Facility Work?

This facility links your deposit account to an overdraft account, giving you a credit limit to draw from as needed. You are charged interest only on the amount you use and for the time you use it, not the full sanctioned limit. To understand better, here are the core features of how it works:

• The deposit is pledged, and the overdraft limit is set as a percentage of its value.
• Withdrawals can be made up to this limit anytime.
• Repayments can be done flexibly, without fixed installments. Only the interest is to be paid on due date and the principal can be paid anytime as per your convenience or when you have surplus funds.
• The deposit continues to earn interest while being lien-marked.

This blend of flexibility and security makes overdraft against deposits different from conventional loans.

Benefits of Choosing Overdraft Against a Fixed Deposit

The facility brings several advantages for deposit holders. Some of the key benefits include:

• Quick Access to Funds: Approvals are faster since your deposit already serves as collateral.
• No Need to Break Deposit: Your deposit continues to earn interest even when you borrow against it.
• Lower Interest Compared to Unsecured Loans: Being secured, overdraft often comes with favourable terms.
• Flexible Repayments: You can repay at your convenience rather than follow a strict EMI schedule.
• Continued Investment Growth: The deposit remains intact, ensuring your savings are preserved.

These benefits make overdraft a practical choice for handling short-term financial needs without disturbing long-term savings.

How to Apply for an Overdraft Against a Fixed Deposit

Most banks make it simple to apply for an overdraft against a deposit, with the facility available both digitally and at branches.

Applying Through Net Banking

Digitally advanced banks like ICICI Bank allow deposit holders to use Net Banking to apply. The process usually involves:

Through Net Banking

1. Log in to your account
2. Go to Bank Accounts > Deposits
3. Click on OD Against FD and tap Avail Now
4. Select the FD against which you want OD and enter the OD amount
5. Review the details
6. Authenticate with GCA (Grid Card Authentication)
7. Submit the request

A confirmation message is generated once the overdraft has been activated successfully.

Applying Through Mobile Banking Apps

For those who prefer mobile channels, banks also provide the facility on their apps like the ICICI Bank’s iMobile app. The typical steps are:

1. Log in to the mobile banking app
2. Go to Accounts & FD/RD
3. Tap on OD Against FD
4. Select the FD you want to link for overdraft
5. Enter the desired OD amount
6. Agree to Terms & Conditions
7. Review your details and proceed
8. Enter GCA (Grid Card Authentication) to confirm

A notification is usually sent once the request has been processed.

Alternatively, customers can visit their nearest bank branch and submit a request for the overdraft against a Fixed Deposit. The steps are easy to follow and user-friendly, whether you choose Net Banking, a mobile app, or the branch.

Points to Keep in Mind Before Applying

Before opting for an overdraft, it is wise to understand the conditions associated with it. Here are some key points:

• Eligibility: A minimum deposit, often ₹10,000, is usually required.
• Loan-to-Value Ratio: Most banks allow up to 90% of the deposit value as overdraft.
• Interest Charges: You only pay interest on the amount withdrawn.
• Repayment: Repay flexibly without monthly installments.
• Lien Marking: The deposit is lien-marked until the overdraft is cleared.

Considering these points helps ensure the facility matches your financial needs and repayment capacity.

Tax Considerations

While the overdraft itself is not taxable, the interest earned on the deposit is. Many depositors wonder about tax on FD interest, and it is important to note that such earnings are added to your taxable income. Key things to know about taxation are:

• Banks deduct TDS once your interest earnings cross the prescribed threshold of ₹50,000 per year (₹1,00,000 for senior citizens).
• Senior citizens enjoy a higher exemption limit before TDS is applied.
• Submitting Form 15G or 15H may help save TDS if your total income is below the taxable limits.

Being aware of how tax on FD interest is handled ensures you can plan your borrowings and savings better.

Why Consider Overdraft Instead of Breaking an FD?

When faced with a financial crunch, many consider prematurely breaking their deposit. However, overdraft offers a practical alternative. Here are some reasons why overdraft is often the better choice:

• Breaking a deposit reduces returns due to penalties and lower interest.
• Overdraft lets you retain the deposit while accessing liquidity.
• Flexible repayment ensures you don’t strain your finances.
• Long-term savings goals remain unaffected.

These reasons make overdraft more efficient for short-term funding compared to the liquidation of deposits.

Tips for Using the Overdraft Wisely

Like any financial facility, overdraft is most useful when managed responsibly. Keep the following tips in mind:

• Borrow only when necessary to avoid additional costs.
• Track usage regularly to keep repayments manageable.
• Treat it as a short-term solution, not a long-term loan.
• Align withdrawal with deposit maturity for smoother planning.
• Always assess repayment capacity before using the limit.

By applying these tips, you can ensure the overdraft facility works in your favour rather than becoming a burden.

Conclusion

An overdraft against a Fixed Deposit is a practical way to manage urgent financial needs without disturbing your savings. It provides quick access to funds, flexible repayment, and preserves investment growth. Understanding how it functions, how to go for it, taking into consideration taxation, and making proper use of it can help you enjoy liquidity along with savings discipline.