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2 mins Read | 6 Months Ago

Overdraft Against A Fixed Deposit - Better Than Closing It



Why should you choose an Overdraft (OD) against your Fixed Deposit (FD) instead of closing it?

When faced with a sudden need for funds, many people turn towards their savings and investments. Among these is an FD (Fixed Deposit), a widely availed financial tool. Withdrawing an FD prematurely however, will lead to financial losses such as interest and penalties.

There is a smarter alternative - opting for an OD against your FD, especially with options like those offered by ICICI Bank. Here is why this is a better option than closing your FD:

  • Continuation of your investment journey

  • A Fixed Deposit is a preferred choice for many because of assured returns and stability. When you opt for an OD against your FD, you preserve the original investment, allowing you to earn continued interest. This means you are not losing out on potential earnings that would have been compromised if the FD was withdrawn prematurely.

  • Immediate liquidity without high costs

  • ODs provide immediate access to funds, up to 90% of the FD value. This immediate liquidity is important especially for businesses that might need funds at a short notice. Unlike other loan products, ODs usually come with no processing fees and prepayment charges, making them cost-effective.

  • Customer-friendly interest rates

  • The interest rates on ODs are more favourable as compared to other investments. This is beneficial for businesses or individuals who are looking for short-term financial solutions without the burden of high interest costs.

  • Streamlined online processes

  • With digital banking, availing an OD against an FD has become convenient. Through various platforms, you can easily manage your OD with just a few clicks, allowing you to save time and effort.

Strategic considerations before opting for an OD:

While opting for an OD against an FD, there are several factors you should consider:

  • Interest rates:

  • ODs against FDs usually have lower interest rates as compared to other loans. This is because the FD acts as a collateral, reducing the risk for the lender. However, rates can vary so it is important to compare interest rates offered by different financial institutions. At ICICI Bank, the rate is 2% more than what you earn on your deposit.

  • Repayment flexibility:

  • ODs against FDs offer flexible repayment options. You can repay at your convenience as long as you do it within the FD’s tenure.

  • Tax implications:

  • Interest earned on the FD is taxable and so is the interest charged. It is important to understand how this impacts your overall tax liability.

  • Alternate options:

  • Compare this option with other credit facilities like Personal Loans, Credit Cards, etc., in terms of interest rates, processing time and flexibility.

  • Read the Terms and Conditions carefully:

  • It is important to understand all the Terms and Conditions associated with the OD facility, including charges for late payment, prepayment and foreclosure.

  • Consulting a financial advisor:

  • If you are unsure about your decision, you should consult a financial advisor. These professionals can give personalised advice based on your financial situation and goals.

Remember, while an OD against an FD can be a convenient and cost-effective way to meet short-term financial needs, it is important to consider its impact on your overall financial health and investment goals.

Fees and overhead charges:

When considering an OD against your FD, it is important to check for any associated fees. Here are some aspects to consider:

ICICI Bank offers a waiver on processing and renewal fees for ODs against FDs. This makes the facility more attractive as it reduces the overall cost. However, it is still important to know about the other possible charges and applicable interest rates.

Apart from that, read the Terms and Conditions thoroughly. Sometimes, certain charges are not evident upfront but can be found in the detailed Terms of the agreement. If you have an ongoing facility, review it regularly for any changes in the Terms or fees, especially if it is linked to a renewable FD.

Choosing an OD against an FD offers a balanced approach for managing urgent financial needs while also preserving and growing your savings. With its cost-effectiveness, flexibility and convenience especially with options like the OD facility offered by ICICI Bank, it is a great option for your financial planning. Such a choice ensures that your long-term financial goals remain intact even as you navigate through short-term challenges.


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