Overdraft Against A Fixed Deposit - Better Than Closing It

When faced with a sudden need for funds, many people turn towards their savings and investments. A lot of people prematurely withdraw or ‘break’ their FDs (Fixed Deposits) to meet the requirement for funds. However, withdrawing an FD prematurely leads to financial losses such as interest loss and penalties.

There is a smarter alternative to closing your FDs before maturity when you need funds urgently- opt for an Overdraft (OD) against your FD. Read on to know why this is a great alternative to closing your FD.

Why you should choose an Overdraft (OD) against your Fixed Deposit (FD) instead of closing your FD

• Continuation of your investment journey: A Fixed Deposit is preferred by many people because of its assured returns and stability. When you opt for an OD against your FD, you preserve the original investment, allowing you to earn continued interest. This means you are not losing out on earnings that would have been compromised if the FD was withdrawn prematurely.
• Immediate liquidity without high costs: An OD against your FD provides immediate access to funds, up to 90% of the FD value. This immediate liquidity can be critical, especially for businesses that need funds at a short notice. Unlike other loans, ODs usually come with no processing fees and pre-payment charges, making them cost-effective.
• Customer-friendly interest rates:The interest rates on ODs are more favourable as compared to other investments. This is beneficial for businesses or individuals who are looking for short-term financial solutions without the burden of high interest costs.
• Streamlined online process: With digital banking, availing an OD against FD has become convenient. Through various platforms, you can easily manage your OD with just a few clicks, saving you time and effort.

Important considerations before opting for an OD against FD

While opting for an OD against an FD, there are several factors you should consider, as given below.

Interest rates: ODs against FDs usually have lower interest rates as compared to other loans. This is because the FD acts as a collateral, reducing the risk for the lender. However, rates can vary, so it is important to compare interest rates offered by different financial institutions. At ICICI Bank, the rate is 2% more than what you earn on your deposit.

• Repayment flexibility: ODs against FDs offer flexible repayment options. You can repay at your convenience, as long as you do it within the FD’s tenure.
• Tax implications: Interest earned on the FD is taxable and the interest paid on the overdraft is not tax deductible for individuals. It is important to understand how this impacts your overall tax liability.
• Alternate options: Compare this option with other credit facilities like Personal Loans, Credit Cards, etc., in terms of interest rates, processing time and flexibility.
• Read the terms and conditions carefully: It is important to understand all the terms and conditions associated with the Overdraft facility, including charges for late payment, pre-payment and foreclosure.
• Consulting a financial advisor: If you are unsure about your decision, you should consult a financial advisor. These professionals can give personalised advice based on your financial situation and goals.
• Remember, while an OD against an FD can be a convenient and cost-effective way to meet short-term financial needs, it is important to consider its impact on your overall financial health and investment goals.

Eligibility for getting OD against FD

Below are the eligibility criteria for securing an OD against FD from ICICI Bank:

• Available to all ICICI Bank FD holders, including individuals and businesses

• Not applicable for FDs held in the name of a minor

• Not available against 5-year Tax-Saver FDs.

Fees and charges of OD Against FD

When considering taking an OD against your FD, it is important to check for any associated fees.

Some banks like ICICI Bank offer a waiver on processing and renewal fees for ODs against FDs. This makes the facility more attractive as it reduces the overall cost. However, it is still important to know about the other possible charges and applicable interest rates. It is also crucial to read the terms and conditions thoroughly. Sometimes, certain charges are not evident upfront but can be found in the detailed terms of the agreement. If you have an ongoing OD, review it regularly for any changes in the terms or fees, especially if it is linked to a renewable FD.

How to close an ICICI Bank OD online?

The procedure to close the ICICI Bank OD online is simple. Follow the steps given below:

Through Internet Banking

• Log into Internet Banking
• Go to ‘Customer Service’ and click on ‘Service Requests’
• Select the ‘Deposits’ tab and choose ‘Closure / Renewal of Fixed Deposit’
• Next, select the linked Account number
• Select ‘Premature Closure of FD’, select the FD Number and submit
• A pop-up shall open for OD / FD closure; click on ‘Proceed’
• Follow the prompts to reach OD / FD closure
• The system will confirm OD closure.

*Please note that upon closing the OD, the associated FD will also be closed automatically.

Through iMobile App

• Log into iMobile
• Click on ‘Accounts & FD / RD’
• Next, select ‘Fixed Deposits’
• Select the FD against which OD has been taken
• Click on ‘More Options’ and select ‘Renew / Close FD’
• Choose the option ‘Closure of FD before Maturity’ and submit
• Review the information at the pre-confirmation screen and submit
• A pop-up for OD / FD closure will appear; click on ‘Proceed’, which will lead to the OD getting closed
• The system will confirm OD closure.

In case you wish to close the OD offline, you can visit any ICICI Bank Branch and fill out the closure form, providing a cheque against the balance payment.

For any assistance regarding closure of your OD, you can also call ICICI Bank Customer Care on 1800 1080.

*Please note that upon closing the OD, the associated FD will also be closed automatically.

Conclusion

Choosing an OD against an FD takes a balanced approach to managing urgent financial needs while also preserving and growing your savings. With its cost-effectiveness, flexibility and convenience, the OD Against FD facility offered by ICICI Bank is a great option for financial planning. Such a choice ensures that your long-term financial goals remain intact even as you navigate short-term challenges.

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