Here’s Everything You Need to Know About Overdraft from Savings Account

10^th Jun 2025...

Key Takeaways

An overdraft on a savings account lets you withdraw funds beyond your available balance within a sanctioned limit.
Overdraft interest is charged only on the utilised portion of the approved limit and is revised annually as per policy.
Savings accounts may include overdraft features, but eligibility depends on the specific account type and bank terms.
Kotak811 offers overdraft privileges for senior citizens, allowing withdrawals up to 85% against their fixed deposits.
Interest is billed monthly, and unpaid amounts are added to the principal, increasing subsequent interest charges.
Overdraft has no prepayment fee, and repayment can be made flexibly without fixed EMIs or penalties.
An overdraft facility can be applied for online or through a written application submitted to the bank.

A savings account is meant to protect your hard-earned money and help you manage expenses with ease. But sometimes, unexpected payments or a missed track of your balance can push your account into overdraft. This means you end up spending more than what you actually have in your account.

In this blog, we’ll explain what an overdraft in a savings account really means, what happens when it occurs, and how you can avoid it in the future.

What is an Overdraft Facility?

An overdraft is a credit facility that allows you to withdraw more money than what is available in your account, up to a certain approved limit. Overdrafts are also common in other lending products. For instance, you can get overdraft loan on your existing personal loans or home loan, where banks may extend an overdraft limit linked to your loan account. Interest is charged only on the amount you actually use from the approved limit, and rates are revised periodically by the bank.

How does Overdraft work?

Banks approve a borrowing limit that lets you withdraw beyond the actual balance in your savings account. The size of this limit depends on factors like income, account type, and your banking relationship.
You pay interest only on the amount you use, not on the entire overdraft limit. This makes it more cost-efficient than a loan.
There are no fixed EMIs; any deposit you make into your account directly reduces the overdraft balance, offering flexible repayment.
Some overdrafts are unsecured, while others may be linked to fixed deposits or collateral, depending on the bank’s rules.

Are savings accounts also allowed to have an overdraft?

Yes, certain savings accounts do allow overdraft facilities. However, this option is not available for every account type—it depends on the bank’s offerings and eligibility criteria. In many cases, overdrafts on savings accounts are linked to a fixed deposit or a minimum balance requirement.

For example, banks permit customers to avail overdraft up to a fixed percentage of their deposit amount, without breaking the deposit. This makes it a helpful feature during financial emergencies. Additionally, such accounts may also provide flexible options like auto-sweeps, where excess funds are transferred into fixed deposits to earn higher interest, while still keeping liquidity available.

Also Read: Overdraft Against Fixed Deposits: Features and Eligibility Explained

Fees and charges on overdraft facilities

While overdraft from savings account offers quick access to funds, they are not free of cost. Banks usually apply different fees and charges depending on your account type, overdraft usage, and repayment behaviour. Here are the common charges you should be aware of:

1. Processing or setup fee
Banks charge a one-time fee when activating the overdraft facility. This covers the administrative cost of assessing eligibility and sanctioning the limit.

2. Interest on overdraft amount
Interest is charged only on the amount you actually use, not on the full overdraft limit. The rates are often higher than regular loans and are reviewed periodically by banks.

3. Renewal or annual fee
If your overdraft limit is sanctioned for a fixed period, usually a year, a renewal fee may apply at the time of extension. This ensures continued access to the facility.

4. Penalty for exceeding limit
If you withdraw more than your sanctioned overdraft limit, banks may impose a penalty. This also applies if repayments are delayed beyond the agreed terms.

5. Other account-linked charges
Some overdraft-linked savings or current accounts may carry additional charges, such as minimum balance penalties or service fees. These can add to your overall borrowing cost if not managed carefully.

Also Read: Common Banking Fees: How To Avoid It & Save Money?

How to get an overdraft facility?

You can have financial freedom with an overdraft facility. It allows you to cover your expenses when there are financial gaps. It might assist you in averting awkward situations and preserving a positive working relationship.

You must go directly to your bank and submit a written application to request the overdraft facility.
Additionally, you have the option to use the overdraft feature online. The money can be transferred to your bank account in two hours and withdrawn whenever needed.
The bank may approve or deny your application for this feature depending on how well you can repay the loan.
You can use the overdraft feature, which connects your Kotak811 bank account to enable overdrawing on your savings account.

When would an Overdraft be useful?

An overdraft is particularly useful in situations where you need short-term liquidity but don’t want to break your savings or fixed deposits. For example, it can help cover unexpected medical expenses, urgent bill payments, or temporary cash flow gaps until your salary or business receivables arrive. Unlike applying for a fresh loan, an overdraft allows immediate access to funds within your approved limit. However, it should be used carefully, as interest rates are higher and frequent reliance may create financial stress.

How to manage Overdraft?

Managing an overdraft responsibly means using it only when necessary and treating it as a short-term backup, not a regular source of funds. Always track your withdrawals and repay the overdraft as soon as possible to reduce interest costs. Setting up account alerts helps you avoid exceeding the limit. It’s also wise to maintain an emergency fund, so you’re not overly dependent on overdrafts for every financial shortfall.

Conclusion

One of the smartest ways to obtain cash when you need it, is by using the overdraft option after you open an online savings account. The amount borrowed through the overdraft facility can be repaid over a variety of flexible terms and methods. To use this function, you must first open a bank account. After that, you must be aware of all the features associated with the overdraft option before moving forward.

FAQs

1. How does a savings account with overdraft work?

A savings account with overdraft lets you withdraw money even if your balance is low or zero, up to a pre-approved limit. You pay interest only on the amount you use, not on the full overdraft limit.

2. Is an overdraft loan good or bad?

An overdraft loan can be good when used responsibly, as it provides quick access to funds for short-term needs without lengthy approval processes. However, frequent use or delayed repayment can make it costly because interest rates are higher than regular loans.

3. What is an example of OD loan?

A common example is a salary-linked overdraft. Suppose your account balance is ₹5,000 but you need ₹15,000 for an urgent expense. If your bank has given you an overdraft limit of ₹20,000, you can withdraw the extra ₹10,000 and repay it later with interest only on that amount.

4. How does an overdraft loan work?

In an overdraft loan, the bank sets a credit limit based on your account type, income, or collateral. You can withdraw funds beyond your balance anytime, up to that limit. Interest is charged only on the amount you use and for the duration you use it, making it flexible for short-term borrowing.

5. Can I use the overdraft facility for non-emergency expenses?

Yes, you can. While overdrafts are designed to help during emergencies, banks generally don’t restrict how you use the funds. However, using it for non-essential spends can lead to unnecessary interest costs.

6. Is there a limit to how much I can borrow through the overdraft facility?

Yes, banks set a borrowing limit based on factors like your income, credit history, and account relationship. In savings accounts, this limit is often linked to fixed deposits or your average balance.

7. How often can I access my overdraft funds?

You can access overdraft funds as often as you like, provided you stay within the sanctioned limit. Each withdrawal is treated as part of the same overdraft facility, and interest is applied only to the utilised portion.