An Overdraft on Fixed Deposit is a smart way to access quick funds without breaking your fixed deposit and losing interest. Instead of withdrawing your FD prematurely, banks allow you to borrow against it at a relatively low interest rate, while your deposit continues to earn returns. This facility is ideal for short-term cash needs, emergencies, or temporary cash flow gaps, offering flexible withdrawals, minimal documentation, and lower costs compared to personal loans or credit cards.
In this blog, we explain what overdraft on FD means, how it works, interest rates, bank-wise examples, benefits, risks, and when it makes sense to use it.
An overdraft on fixed deposit (FD overdraft) is a credit facility where a bank allows you to borrow money by keeping your fixed deposit as security. Instead of breaking the FD, the bank places a lien on it and gives you access to funds up to a pre-approved limit. The FD continues to earn interest, while you pay interest only on the amount you actually use.
Simply put:
This facility is also referred to as loan against fixed deposit, but overdraft offers more flexibility in withdrawal and repayment.
An overdraft on FD is different from a regular loan in several ways:
The overdraft limit is directly linked to the value of your fixed deposit. Most banks allow you to withdraw 75% to 90% of the FD amount as an overdraft.
For example:
The exact limit depends on factors such as:
Higher FD amounts and longer tenures generally result in higher overdraft limits.
| Step | Process Stage | What Happens |
|---|---|---|
| 1 | FD as Security | You open or already hold a fixed deposit with the bank. The FD acts as collateral for the overdraft facility. |
| 2 | FD Marked as Lien | The bank places a lien on the FD, restricting premature withdrawal until the overdraft dues are cleared. |
| 3 | Overdraft Account Linked | An overdraft account is created and linked to the FD, with a limit usually ranging from 75% to 90% of the FD value. |
| 4 | Withdrawal Flexibility | You can withdraw funds anytime up to the approved limit through net banking, cheque, or branch access. |
| 5 | Interest on Utilized Amount | Interest is charged only on the amount actually used, not on the entire overdraft limit. |
| 6 | Flexible Repayment | You can repay the overdraft partially or fully at any time without fixed EMIs or prepayment penalties. |
| 7 | Closure of Overdraft | Once the outstanding amount is repaid, the lien is removed and the fixed deposit becomes fully accessible again. |
The interest rate on overdraft against fixed deposit is one of its biggest advantages. Since the FD itself acts as security, banks offer this facility at a much lower rate compared to unsecured loans.
Banks calculate overdraft interest on a daily outstanding balance. This means:
There are no fixed EMIs. You have the flexibility to repay anytime and minimize interest costs.
Most banks price FD overdrafts as:
FD Interest Rate + 1% to 2% margin
For example:
The exact margin depends on:
Compared to other borrowing options, overdraft on FD is significantly cheaper:
This makes FD overdraft a cost-effective choice for short-term funding needs.
The overdraft limit determines how much money you can withdraw against your FD. Banks generally allow a high percentage of the FD value as overdraft.
Most banks allow an overdraft limit of:
75% to 90% of the fixed deposit value
For example:
Each bank sets its own rules for:
Public and private banks may differ slightly in limits offered.
Rates may vary based on FD tenure, customer profile, and bank policy.
These rates are significantly lower than:
The eligibility requirements for an overdraft against fixed deposit are simple because the FD itself works as security. Most banks follow similar criteria with minor variations.
Since the overdraft is fully secured, credit score and income proof are usually not required.
Banks may set different minimum thresholds for online and branch-based applications.
Most banks allow overdraft on:
However, the following are usually not eligible:
Documentation for FD overdraft is minimal, especially for existing customers.
KYC is often already completed for existing FD holders.
These details help the bank mark the FD as lien.
Once submitted and approved, the overdraft account is activated quickly.
You can apply for an overdraft against fixed deposit either online or offline. The process is simple because the FD already exists with the bank.
Most major banks allow FD overdraft requests through digital channels. The typical steps are:
Once approved, the overdraft account is created and linked to your FD. Funds become available almost instantly in many cases.
If online application is not available, you can apply through a bank branch.
The offline process may take one to two working days depending on the bank.
One of the key benefits of overdraft on FD is its low cost compared to other borrowing options.
This flexible interest structure helps reduce borrowing costs when funds are needed for a short period.
| Factor | FD Overdraft | Breaking Fixed Deposit |
|---|---|---|
| Impact on Interest Earnings | Fixed deposit continues to earn interest for the full tenure. | Interest is reduced or lost due to premature withdrawal penalty. |
| Cost Comparison | Low cost. Interest charged is usually FD rate + 1% to 2%. | High hidden cost due to loss of interest and penalty. |
| Flexibility & Convenience | High flexibility. Withdraw and repay anytime with no fixed EMIs. | No flexibility. FD must be closed fully or partially. |
FD overdraft is better if you need temporary funds.
An overdraft on fixed deposit offers several benefits, especially for short-term funding needs.
Since the overdraft is secured against your FD, banks charge a much lower interest rate compared to personal loans or credit cards. This makes it a cost-effective borrowing option.
The fixed deposit itself acts as collateral, so income proof and extensive credit checks are usually not required. This makes approval quick and hassle-free for FD holders.
Interest is charged only on the amount you actually withdraw, not on the entire sanctioned limit. If you repay part of the amount early, your interest burden reduces immediately.
Even after taking an overdraft, your FD continues to earn interest for the full tenure, helping you preserve your long-term savings while meeting short-term needs.
While FD overdraft is useful, it also has certain limitations you should be aware of.
If the overdraft amount remains unpaid, the bank has the right to recover the outstanding balance by adjusting it against your FD, which may affect your savings.
The overdraft interest rate is higher than the FD interest rate (usually by 1%–2%), meaning there is still a borrowing cost involved.
FD overdraft is best for short-term or emergency cash needs. Using it for long periods can increase interest costs and reduce overall returns.
Before opting for an overdraft against fixed deposit, it is important to understand its tax treatment.
The interest earned on your fixed deposit continues to be fully taxable as per your income tax slab, even if the FD is marked as lien for an overdraft.
The interest you pay on the overdraft cannot be claimed as a tax deduction under the Income Tax Act, as it is considered a personal borrowing expense.
An overdraft on FD is most suitable in specific situations where short-term liquidity is required.
Ideal for sudden expenses such as medical emergencies, urgent repairs, or unexpected financial needs where quick access to funds is required.
Useful for managing temporary cash flow gaps, business working capital needs, or timing mismatches between income and expenses.
Best option when you want funds without breaking your FD and losing interest due to premature withdrawal penalties.
An overdraft on fixed deposit is a credit facility where a bank allows you to borrow money by keeping your FD as collateral. The FD continues to earn interest, and the bank charges interest only on the amount you use.
Most banks allow an overdraft of 75% to 90% of the FD value, depending on bank policy, FD tenure, and type of deposit.
The interest rate is usually 1% to 2% higher than your FD interest rate. Interest is calculated only on the amount withdrawn, not on the full sanctioned limit.
Yes. An overdraft helps you avoid premature FD withdrawal penalties and allows your FD to continue earning interest, making it a better option for short-term fund needs.
Yes, you can take an overdraft anytime during the FD tenure, as long as the FD is active and not already pledged.
No. Since the FD itself acts as security, banks generally do not require income proof or credit score checks.
Interest is calculated on a daily outstanding balance and charged only for the period during which the overdraft amount is used.
Yes. There is no fixed EMI. You can repay the amount partially or fully at any time without prepayment penalties.
If you fail to repay, the bank has the right to recover the outstanding amount by adjusting it against your FD.
Generally, FD overdrafts do not affect your credit score, unless there is a default that gets reported to credit bureaus.
Most banks charge zero or very minimal processing fees for overdraft against FD.
Yes. The interest earned on FD remains fully taxable as per your income tax slab, even if the FD is under overdraft.
Yes, but consent of all joint holders is usually required, depending on bank rules.
No. FD overdraft is best suited for short-term or emergency cash needs due to higher interest compared to FD returns.
Most major banks in India, including SBI, HDFC Bank, ICICI Bank, Axis Bank, and Kotak Mahindra Bank, offer overdraft facilities against FD.
An overdraft on fixed deposit is a practical and cost-effective way to meet short-term financial needs without disturbing your long-term savings. It allows you to access funds quickly, pay interest only on the amount used, and continue earning interest on your FD at the same time. Compared to breaking an FD or opting for high-interest borrowing options like personal loans or credit cards, an FD overdraft offers better flexibility and lower costs. However, it is best suited for temporary requirements and should be repaid promptly to avoid unnecessary interest. Before applying, always compare bank margins, overdraft limits, and terms to make the most of this facility.
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