Overdraft Against Fixed Deposit

Overdraft Against Fixed Deposit: Features and Eligibility Explained

Fixed deposits (FDs) are one of the most well-liked investing alternatives in India. With FDs, you can place money in a bank for a set amount of time and receive a set interest rate. The low risk may be one of the main factors behind FDs' appeal. FDs don't have any market connections and solely profit from fixed interest.

However, the lock-in time is a significant disadvantage of FDs that many people bring up. Only after the lock-in period are funds available for withdrawal. If you have to withdraw before the loan's maturity, a penalty or a lesser interest rate might be charged. In addition, the interest rate on overdraft (OD) relative to FD is slightly higher.

Characteristics of an overdraft taken against a fixed deposit

Let's examine the characteristics of OD versus FD:

  • Status of fixed deposit (FD)

The fixed deposit remains an active source of interest earnings without any associated penalties throughout the overdraft facility's utilisation.

  • Exemption from processing fees

 In contrast to various loan products burdened with processing fees, overdrafts against fixed deposits typically do not impose such costs on the borrower.

  • Credit score flexibility

While conventional loan applications often hinge on a favourable credit score, an overdraft secured by a fixed deposit extends accessibility even to individuals with less-than-ideal credit histories.

  • Favourable interest rates

Notably, one of this financial instrument's most compelling features is its favourable interest rates. In contrast to Personal Loans, which may carry high interest rates for banks and non-banking financial companies (NBFCs), an overdraft against fixed deposits typically entails only a marginal interest rate increment, often just one or two percentage points.

  • Streamlined documentation

Leveraging your fixed deposit as collateral streamlines the loan application process, particularly given that fixed deposit holders typically maintain an established rapport with the bank. 

Consequently, overdrafts against fixed deposits necessitate minimal paperwork. Moreover, if your bank extends the convenience of online applications for such overdrafts, the process becomes further expedited.


Must Read: What are Fixed Deposit Accounts & How Do They Work?

Are you eligible for an overdraft?

Depositors in the following categories may request an overdraft against a fixed deposit interest rate:

  • Any resident or NRI of India who is at least 18 years old
  • Corporations
  • Trusts
  • Businesses
  • Clubs
  • The Societies
  • HUFs, or Hindu Undivided Families
  • Organisations
  • Academic institutions

Closing an overdraft against your fixed deposit

To wrap up an overdraft against your FD, there are some straightforward steps you'll want to follow:

  • Visit your bank branch:

Most banks don't offer the convenience of closing an OD online. So, the first thing to do is make a trip to the branch where your account is registered. They'll assist you in initiating the closure process.

  • Clear your outstanding balance

Before requesting the closure, make sure you've settled any remaining balance on your overdraft. They won't entertain closure requests until you've cleared your dues.

  • Online closure

If your bank does provide an online OD closure option, you can access it through your net banking account. Go to the "Fixed Deposit" section and select "Close Overdraft." 

When considering the advantages of an overdraft, it's advisable to weigh it against alternative methods of debt repayment. For instance, consider Personal Loans, which frequently entail higher interest rates and a more protracted application process.

In contrast, choosing an overdraft against the FD interest rate frequently proves to be a more appealing option. It boasts lower interest rates, allows you to repay the amount throughout your FD's maturity period, and offers the added perk of prepayment without any extra fees.

At Kotak811, you can get a Dream Different lifetime free credit card against a Fixed Deposit (minimum Rs 5,000). It lets you unlock a credit limit of up to 90% of your FD. Moreover, it can help you build your credit score while earning reward points on card usage.


Must Read: Disadvantages Of Having A Bad Credit Score



With an overdraft against a fixed deposit, you have the flexibility to use your FD corpus for urgent requirements at a reasonable cost. It ensures you don't lose the return on the entire amount of your FD. You can decide how much and how long you want to use it temporarily. 

Additionally, the interest rate for an overdraft against a fixed deposit is relatively low compared to unsecured overdraft plans. So, rather than making an early withdrawal if you are considering terminating your FD owing to a short-term cash need, choose an overdraft. To get the most out of your overdraft facility against a fixed deposit, make sure to pay down the overdraft as quickly as possible.

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This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empanelled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees, and contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.