Need Cash? Here’s How Overdraft (OD) Against FD Can Help You

An overdraft (OD) against a Fixed Deposit (FD) is one of the fastest and most cost-effective ways to borrow money from a bank without prematurely breaking the FD. In this arrangement, your Fixed Deposit serves as collateral for the OD facility. With Ujjivan Small Finance Bank, you can get an OD limit of up to 80% of your FD's value, with interest typically capped at 2% above the FD's contracted interest rate. Another significant benefit is that interest is charged only on the amount actually utilised, rather than the total sanctioned amount, making it a flexible and economical borrowing option. 

Understanding OD Against Fixed Deposit

An overdraft against FD is a secured loan that allows you to borrow funds from your bank using your Fixed Deposit as collateral. This facility enables you to meet financial emergencies or fund personal or business needs without having to liquidate your FD prematurely. Since the loan is secured, banks offer competitive interest rates, making it an attractive alternative to personal loans or credit cards.

Key Features and Benefits of Overdraft Against FD

1. High Loan-to-Value Ratio: Banks generally allow an OD limit of up to 80% of the FD value, ensuring you can access a substantial amount of funds.
2. Lower Interest Rates: The interest rate on an OD is usually just 2% above the FD interest rate, making it a cost-effective borrowing option.
3. Flexible Usage: You only pay interest on the amount you withdraw and use, not on the total sanctioned amount.
4. No Processing Fees: Banks like Ujjivan waive processing fees for OD facilities linked to FDs, saving you additional costs.
5. Preserves FD Benefits: Your FD continues to earn interest, even while it serves as collateral.
6. No EMI Obligation: There is no fixed repayment schedule. You can repay the borrowed amount as per your convenience, provided the OD limit is not exceeded.

Eligibility and Important Points to Remember to Avail Overdraft Against FD

• The facility is available only to existing bank customers with Fixed Deposits
• An overdraft against FD facility for traditional or Cumulative retail FDs may be availed only if the FD is a minimum of 6 months in tenure
• The Sanction amount shall be valued at ₹25,000 or more. Auto-renewal instruction for the FD is necessary for eligibility.
• The FD held by the customer must be for a period of 6 months at least from the date of opting for the advance against it. 
• For short-term FDs, the OD's duration is set for a year and must not surpass the tenure of the FD. However, it can be accepted if TD is in Auto renewal mode. 
• For multiple deposits, the OD's duration cannot exceed the term of the earliest maturing FD.
• The interest is debited on the first day of the month for utilised amount for both existing and new customers. 

Documents Required for Overdraft Against Fixed Deposit 

1. Overdraft against Fixed Deposit Application Form 
2. DPN (Demand Promissory Note)-Obtain Delivery Letter for DPN. This is part of revised AOF 
3. DPN 
4. Lien Letter (part of AOF) 

How OD Against FD Fares Against Other Loan Options

1. No Credit Score Requirement: Since the FD is collateral, a credit score check is often not required.
2. Faster Processing: Banks process OD against FD requests quickly, sometimes within hours.
3. No Asset Evaluation: Unlike other secured loans, there is no need for asset valuation.
4. Cost-Effective: Lower interest rates make it a cheaper alternative to personal loans or credit cards.