Overdraft Against FD

Last updated:
Overdraft Against FD

Fixed deposits (FDs) have long been considered a safe and secure investment option for individuals looking to grow their savings while avoiding risks. However, what many people don't realize is that FDs can be more than just a regular investment. They can also act as a valuable financial tool, especially when you need access to funds in times of emergencies. Overdraft against FD is a feature that allows you to tap into the value of your fixed deposit while keeping it intact, offering the best of both worlds.

Read on to learn more about how an overdraft against FD works, what advantages it offers, and what disadvantages you need to be informed about!

Understanding Overdraft Against FD

An overdraft against FD is essentially a loan facility that banks and financial institutions offer to individuals who have a fixed deposit. This facility allows you to withdraw funds up to a certain limit, which is usually a percentage of the total value of your FD. The beauty of this arrangement is that you don't need to prematurely break your FD, which would attract penalties. Instead, you can access the money you need while your FD continues to earn interest.

How to Avail Overdraft Against FD?

Here’s how you can get an overdraft against FD!

Check Your Eligibility

You must have an existing fixed deposit account at the bank or financial institution from where you want to avail of the overdraft facility. The criteria may differ from one institution to another.

Submit the Application

Contact your bank and inquire about their overdraft against the FD facility. You will need to fill out an application form and follow instructions from your bank to complete the procedure. 

Wait for the Application Verification

The bank will evaluate your FD and determine the overdraft limit, usually a percentage of the FD's value. Then, the overdraft amount and tenure will be decided. The bank will have further terms and conditions. You will be informed once the application is approved.

Receive the Overdraft

Once approved, the bank will generate the overdraft facility and the limit will be set. The money will be available in your account. You can start using the overdraft up to the pre-set limit.

Withdraw the Overdraft

You can now access the overdraft funds when and as needed through your bank account, ATM, or checks, depending on the bank's facilities. 

Make Timely Repayment

Even in cases of secured loans, you must make repayments on time. If you fail to do so, the bank will have the right to break your FD and collect the money. It will eventually hit your credit score.

Advantages of Overdraft Against FD

Take a loan or overdraft against your FD and enjoy the following benefits. 

Liquidity without Breaking FD

The primary advantage of overdraft against FD is that it provides instant liquidity without requiring you to break your fixed deposit. It is crucial because premature withdrawal of an FD can result in loss of interest income and may even charge penalties, depending on the terms and conditions of your FD provider.

Competitive Interest Rates

Overdraft against FD often offers competitive interest rates compared to other unsecured loans. Since the FD backs the borrower, the bank will have a source for collecting the loan if you fail to repay. You become a low-risk borrower and can avail of higher interest rates, making it an affordable source of credit. 

Quick and Convenient

The application process for an overdraft against FD is generally quick and convenient. Since your FD serves as collateral, it eliminates the need for extensive credit checks and documentation. In many cases, since you have already provided all your information and completed your KYC, you do not have to offer many documents. 

No Set Repayment Schedule

Unlike traditional loans, where you have to adhere to a fixed repayment schedule, an overdraft allows flexibility. You can repay the borrowed amount at your own pace as long as you pay the interest on time.

Interest on Only What You Use

You are only charged interest on the amount you withdraw, not the entire overdraft limit. This can save you money compared to a traditional loan, where you are charged interest on the entire principal amount.

No Impact on Credit Score

Since the overdraft against FD is a secured loan, it doesn't affect your credit score as long as you meet your repayment obligations. 

Emergency Fund

Since it is a secured loan, it becomes a huge relief during emergencies. When you need immediate money, apply for an overdraft against FD, and you will have more chances of approval than other insecure loans. It is a handy emergency fund, providing peace of mind in unforeseen financial crises.

Continued Interest Accumulation

Your FD continues to earn interest even as you utilize the overdraft facility, thus preserving the capital.

Disadvantages of Overdraft Against FD

Here are the disadvantages you should be careful about!

Reduced FD Interest

The amount you withdraw under the overdraft facility will no longer earn the original FD interest rate. It typically earns a lower rate of interest, which may be less than the interest on the FD.

Collateral at Risk

If you fail to make the interest payments or do not repay the overdraft within the agreed terms, the bank can liquidate your FD to recover the outstanding amount. This means your FD may be at risk.

Limited Tenure

Overdraft against FD usually comes with a limited tenure, and you may need to renew it if you require the facility for a longer period.


Overdraft against FD is an effective way to maximize the use of your fixed deposit, providing access to funds while protecting the principal amount and earning interest. It is a versatile financial tool, especially for medical, financial, or otherwise emergencies. However, it's essential to use this facility responsibly and be aware of the terms and conditions set by your bank or financial institution. If used wisely, overdraft against FD can be a valuable addition to your financial journey, offering liquidity and financial security.