Individuals prefer to book fixed deposits as it is considered as safe fixed income instrument. It is also very popular among senior citizens and individuals with low risk profile.
An overdraft is a credit given to the individual against his fixed deposit.
For example, if you have a fixed deposit of Rs 1 lakh, the bank may allow you to give credit of 85 per cent i,e Rs 85,000 as overdraft on FD.
It may so happen, after booking bank fixed deposits, we may need money for an emergency for a short period. In such cases, overdraft facility or OD is a better option when compared to a personal loan or gold loan.
Breaking a fixed deposit at this point is not a good option as some banks charge a pre-mature withdrawal fee. And you may also miss the high interest rate prevailing at that time.
1) The interest rate on overdraft is usually higher than bank fixed deposit rates. The overdraft rate various with the bank and on the tenure of the overdraft.
2) The maximum amount of the overdraft amount will be 80-95 per cent of the fixed deposit amount.
3) Tenure of the loan depends on the maturity of the fixed deposits. If one fails to pay the amount, it will be adjusted towards the fixed deposit.
4) An overdraft can be closed without any pre-payment charges.
5) There is no much paper work and eligibility involved as compared to availing personal loan.