All About OD Against FD: Terms, Interest Rates, and Eligibility
11 March 2025 · Sachin
When it comes to managing liquidity, many investors look for options that provide easy access to funds without breaking their long-term investments. One such option is “OD against FD” or Overdraft against Fixed Deposit.
How Does Overdraft Against FD Work?
OD against FD works by allowing a customer to withdraw funds up to a specific percentage (typically 75% to 90%) of their fixed deposit. The overdraft amount can be utilized in parts or in full, depending on the customer’s needs. The interest rate charged on this overdraft is usually 1-2% above the FD interest rate. This means that if your FD earns 6% interest, the overdraft might cost you around 7-8%.
Benefits of OD Against FD:
1. Liquidity Without Breaking FD: One of the main advantages is that you can access cash without breaking your fixed deposit, allowing it to continue earning interest.
2. Lower Interest Rate: Compared to personal loans or credit card loans, the interest rate on overdrafts against FD is relatively low.
3. Flexible Repayment: The amount borrowed can be repaid at any time, and interest is charged only on the amount utilized.
4. No Prepayment Charges: Unlike other loans, there are usually no prepayment charges if you decide to repay the overdraft early.
5. Improved Credit Score: Regular repayments on overdrafts can help in building a good credit history.
OD Against FD Interest Rates:
Interest rates on overdrafts against FDs generally range between 1-2% above the fixed deposit interest rate. Different banks may have slightly varying rates, and it’s essential to check with your bank for the most accurate rate. Here’s an example:
HDFC Bank: Charges 2% above the FD rate.
ICICI Bank: Charges 1% above the FD rate.
State Bank of India (SBI): Offers an OD against FD at 1% above the FD rate.
How to Calculate OD Against FD Amount?
To apply for an OD against FD, you need to follow these steps:
Visit Your Bank’s Branch or Online Portal: Most banks provide the option to apply for an overdraft against FD through their online banking portals or by visiting the branch.
Submit Necessary Documents: Generally, a simple application form and proof of FD are required.
Approval and Overdraft Limit Setting: Once approved, the bank sets an overdraft limit based on the FD amount, and you can access funds up to this limit.
OD Against FD vs. Other Loan Options:
OD Against FD vs. Personal Loan: Personal loans usually have higher interest rates and stricter repayment terms. OD against FD is cheaper and more flexible.
OD Against FD vs. Credit Card Loan: Credit card loans have very high-interest rates, whereas OD against FD offers a lower rate with similar flexibility.
OD Against FD vs. Loan Against FD: A loan against FD is also an option, but it may have a longer approval time and fixed EMIs. OD against FD provides more flexibility in terms of withdrawal and repayment.
OD Against FD Calculator: How to Use?
An OD against FD calculator helps you determine the maximum amount you can borrow and the interest applicable. You will need to input:
The FD amount.
The interest rate on the FD.
The overdraft rate (usually 1-2% above the FD rate).
The calculator will provide the overdraft amount and monthly interest costs, helping you make an informed decision.
Key Points to Consider:
Penalty for Default: While overdrafts offer flexibility, defaulting on repayments can incur penalties or negatively affect your credit score.
Impact on FD Maturity Value: While the FD continues to earn interest, using it for an overdraft may reduce the effective return, especially if the overdraft interest rate is high.
Overdraft Closure: It’s crucial to understand the terms for closing or reducing an overdraft against FD. Make sure to inquire about any hidden charges or conditions.
Conclusion
OD against FD is an excellent tool for those looking for liquidity without liquidating their long-term investments. It offers a lower interest rate than most other loan types, and the process is simple and quick. Understanding how OD against FD works, its benefits, and the costs involved can help you decide to manage your funds effectively. If you’re considering such an option, compare rates and terms across banks to find the best deal that suits your financial needs. Understanding these essential financial instruments can help you make better decisions in your investment journey.