Managing your funds is of the utmost importance since you never know when you might need them. Fixed deposits are the most commonly preferred way to save some funds in India. When you opt to invest your money in term deposits, you are guaranteed some returns over the tenure of the deposit. Fixed deposit and recurring deposits are the two types of term deposits.
When you opt for fixed deposit, you will have to deposit a fixed amount when you open the fixed deposit. When you opt for recurring deposit, you will have to deposit some part of your income on a monthly basis. You will keep getting interest on the amount that you are depositing. The rate of interest that is offered to you depends on the banks as different banks offer different rates of interests. Overdraft is one term which is commonly associated with fixed deposits.
Overdraft Facility:
If you urgently need some money and you do not have any money in your account, the first thing that you can think of in such a situation is breaking your fixed deposit. But not a lot of people are aware that in such a circumstance, you do not need to break your fixed deposit, instead, you can take a loan against your fixed deposit. This is called as an overdraft facility. However, you can withdraw only a certain amount. You will also have to pay interest on the loan that you take.
How much Loan can you Opt for?
If you opt for an overdraft facility, then you can withdraw 70-90% of the amount from your fixed deposit. How much loan you can take is completely dependent on your lender or financial institution. You will be charged with an interest that you have to pay. This interest is decided by the financial institutions or lenders depending on your financial capability. Generally, financial institutions or lenders charge 2-2.5% rate of interest.
By availing this facility, you can keep your investments and savings in place and you will not be burdened with the feeling of losing all your money. If you happen to lose the money that you have borrowed, you will lose your fixed deposit too. If you are not able to repay your debt for some reason, you will be charged with a penalty from the financial institution or lender. No processing fees are levied to avail this option.
Tenure and the Repayment Procedure:
The tenure or the term of the overdraft facility is equivalent to the term of fixed deposit against which you have taken a loan. The repayment of this loan is same as the other loans that you take. The financial institutions or lenders decide an Equated Monthly Installment (EMI) which is directly proportional to your monthly income.
If you gather some funds or get a salary hike, you can use the surplus amount to close this loan before the end of tenure. The financial institutions or lenders do not charge you any penalty for closing your loan before time.
One of the advantages of taking a loan against your fixed deposit is that you will continue receiving interest on the original fixed deposit. The only drawback of the overdraft facility is that you will not be able to break the fixed deposit once you avail the loan.
The overdraft facility is the best option that is available in the market when you are in dire need of some funds. If you choose to avail a personal loan instead of the overdraft facility, you will be charged with a higher rate of interest comparatively.