Overdraft Against A Fixed Deposit – Better Than Closing It

Posted on Friday, February 23rd, 2024 | By IndusInd Bank

In times of sudden financial need, individuals often resort to withdrawing their savings and investments, including Fixed Deposits (FDs), which can result in significant losses due to premature withdrawal penalties and loss of interest earnings. This dilemma poses a challenge for those seeking immediate liquidity without sacrificing their investment returns. 

What is an overdraft against FD? 

An overdraft against a fixed deposit (FD) allows customers to borrow funds up to a certain limit against the value of their FD, providing liquidity without breaking the FD prematurely. Interest is charged only on the amount withdrawn while the FD continues to earn interest. 

By leveraging the OD against FD provided by IndusInd Bank, customers can access funds quickly while keeping their FD intact, thus avoiding the financial losses associated with premature withdrawal. Let’s see how: 

1. Maintaining Financial Flexibility: By opting for an OD against FD, you retain the liquidity of your fixed deposit while still being able to access funds when needed. This can be advantageous in times of emergency or when you require additional funds for short-term needs without having to break your FD prematurely. 

2. Avoiding Early Withdrawal Penalties: Closing your FD prematurely may result in penalties or loss of interest earnings, depending on the terms and conditions set by the financial institution. Opting for an overdraft against your FD allows you to avoid these penalties while still leveraging the value of your Fixed Deposit. 

3. Cost-Effective Borrowing: Overdraft interest rates are often competitive, making them an appealing choice for short-term financial management compared to personal loans or credit cards. 

4. Continued Earnings: Preserving your fixed deposit ensures ongoing interest accumulation, thereby maximising returns, particularly advantageous with favourable interest rates. 

5. Emergency Fund Backup: Your FD acts as a reliable emergency fund, offering a safety net for unforeseen expenses. Using an overdraft against it lets you access this reserve without exhausting it completely. 

Also Read: An Insight into FD Schemes on IndusInd Bank 

Key Factors to Consider Before Choosing an Overdraft (OD):  

When considering opting for an overdraft (OD) against your fixed deposit (FD), it’s important to evaluate several factors to make an informed decision. Here are some key considerations: 

1. Interest Rates: Compare the interest rate charged on the overdraft facility against the interest rate earned on your fixed deposit. Ensure that the interest rate on the overdraft is reasonable and competitive. 

2. Terms and Conditions: Review the terms and conditions of the overdraft facility carefully, including any associated fees, minimum and maximum withdrawal limits, repayment terms, and renewal conditions. Pay attention to any hidden costs or penalties that may apply. 

3. Impact on FD: Understand how opting for an overdraft against your FD affects the principal amount, maturity date, and interest earnings of your fixed deposit. Consider whether accessing funds through the overdraft aligns with your investment goals and financial timeline. 

4. Credit Limit: Determine the maximum credit limit available through the overdraft facility, taking into account your financial needs and borrowing capacity. Avoid borrowing more than necessary to prevent overextending yourself financially. 

5. Repayment Strategy: Develop a clear repayment strategy for the overdraft, considering your income sources, cash flow projections, and ability to make timely repayments. 

Extra Fees or Charges 

When contemplating an overdraft (OD) against your fixed deposit (FD), it’s crucial to examine any linked fees. Here are some factors to take into account: 

1. Penalties for Default: Failure to adhere to the terms and conditions of the overdraft agreement may result in penalties or additional charges. 

2. Prepayment Charges: Customers opting to repay the overdraft amount before the agreed-upon tenure may incur prepayment charges. 

Additionally, it’s crucial to review the Terms and Conditions thoroughly. Occasionally, certain charges may not be immediately apparent but can be discovered in the detailed terms of the agreement 

Also Read: How to Book a Fixed Deposit (FD): 3-Step Guide 

Conclusion

In conclusion, utilising IndusInd Bank’s overdraft facility against FDs not only safeguards against premature withdrawals but also aligns with prudent financial planning. Explore IndusInd Bank’s 

FD page for more information, and use the IndusInd FD Calculator to assess the potential benefits tailored to your financial situation. 

Disclaimer:  The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information.