When Priya needed ₹3 lakh for her daughter’s college fees, she didn’t want to break her ₹5 lakh Fixed Deposit (FD). Instead, she took an Overdraft (OD) loan against her FD—keeping her deposit intact while accessing funds at just 2% above her FD interest rate.
If you have an FD or RD and need liquidity, here’s how OD loans work, their pros & cons, and which option is better for you.
1. What is an Overdraft (OD) Loan Against FD/RD?
An OD facility allows you to borrow up to 90% of your FD/RD value while your deposit continues earning interest.
Key Features:
| Parameter | FD-OD | RD-OD |
| Loan Amount | Up to 90% of FD value | Up to 75-85% of RD balance |
| Interest Rate | FD rate + 1-2% | RD rate + 2-3% |
| Tenure | Same as FD tenure | Same as RD tenure |
| Repayment | Flexible (pay interest only) | Flexible (pay interest only) |
Example:
- You have a ₹5L FD @ 7%.
- OD limit = ₹4.5L (90%)
- OD interest = 7% + 2% = 9%
2. FD-OD vs RD-OD: Which is Better?
✅ FD-OD Advantages
✔ Higher loan amount (up to 90% vs RD’s 85%)
✔ Lower interest rate (just 1-2% over FD rate)
✔ Available instantly (even for new FDs)
✅ RD-OD Advantages
✔ Use recurring deposits (no lump-sum FD needed)
✔ Partial withdrawals allowed (unlike FD breakage penalties)
Best for Emergency Funds: FD-OD (better rates)
Best for Regular Savings: RD-OD (flexibility)
3. Step-by-Step Process to Get an OD Loan
Step 1: Check Eligibility
- FD/RD must be with the same bank (e.g., Can’t get SBI OD against HDFC FD).
- Minimum FD/RD tenure: Usually 6+ months.
Step 2: Apply Online/Offline
- Online: Net banking > “Loan Against FD” section (e.g., ICICI FD-OD)
- Offline: Submit form at branch
Step 3: Set OD Limit
- FD-OD: Up to 90% (e.g., ₹4.5L for ₹5L FD)
- RD-OD: Up to 85% (varies by bank)
Step 4: Withdraw Funds
- Use net banking/cheque book to access OD money.
- Interest charged only on used amount.
4. Interest Calculation: How Much Does It Cost?
FD-OD Example:
- FD: ₹10L @ 7% for 5 years
- OD Limit: ₹9L (90%)
- OD Interest: 7% + 2% = 9%
- If you use ₹3L for 6 months:
- Interest = ₹3L × 9% × 0.5 = ₹13,500
Savings vs Personal Loan:
- OD Cost (9%) = ₹13,500
- Personal Loan (15%) = ₹22,500
👉 You save ₹9,000!
5. Pros & Cons of OD Against FD/RD
✅ Pros
✔ Lower interest than personal loans (9-12% vs 12-24%)
✔ No credit check (approval guaranteed if FD/RD is with the bank)
✔ Flexible repayment (pay interest-only or principal anytime)
✔ FD/RD continues earning interest
❌ Cons
✖ Limited to FD/RD value (can’t borrow beyond 90%)
✖ Penalty if FD breaks prematurely (without OD)
✖ Not all banks offer RD-OD (check with your branch)
6. Top Banks Offering FD/RD-OD in 2024
| Bank | FD-OD Rate | RD-OD Rate | Max Loan % |
| SBI | FD rate + 1% | Not offered | 90% |
| HDFC | FD rate + 2% | RD rate + 3% | 90% (FD), 85% (RD) |
| ICICI | FD rate + 1.5% | RD rate + 2.5% | 90% (FD), 80% (RD) |
| Axis | FD rate + 2% | RD rate + 3% | 85% |
Apply: HDFC FD-OD | ICICI RD-OD
7. When Should You Choose OD Over Breaking FD/RD?
Choose OD If:
✔ You need temporary liquidity (repay in 3-6 months)
✔ Your FD is earning high interest (e.g., 7%+)
✔ You want to avoid tax on FD interest (TDS applies on premature closure)
Break FD/RD If:
✖ You need 100% cash (OD allows only partial access)
✖ Your FD rate is low (<5%)
8. Tax Implications
- OD interest paid is not tax-deductible.
- FD/RD interest earned is taxable (if ₹40K+/year).
Smart Move: Senior citizens can earn tax-free FD interest up to ₹50K/year (Section 80TTB).
Alternatives to FD/RD-OD
- Gold Loan (7-15%) – Gold vs FD-OD Comparison
- Personal Loan (12-24%) – Only if credit score >700
- Credit Card OD (24-36%) – Avoid unless emergency
Final Verdict: Should You Use FD/RD-OD?
YES if:
- You need short-term funds (<1 year)
- Your FD/RD earns higher interest than OD cost
NO if:
- You can’t repay soon (risk losing FD)
- You need full FD amount
