Many individuals and businesses prefer using an overdraft against a fixed deposit (OD against FD) as a short-term financing tool. It allows the borrower to access funds while keeping the fixed deposit intact, earning interest. This method is cost-effective and convenient because the interest on the overdraft is generally lower than personal or unsecured loans. To determine the financial feasibility and benefits of such borrowing, an OD against FD calculator becomes a crucial tool. It helps borrowers estimate interest costs, available loan limits, and repayment impacts without manual calculations.
What Is OD Against FD?
Understanding the Overdraft Facility
Overdraft against a fixed deposit is a loan facility where the bank allows you to withdraw money beyond your account balance, using your FD as collateral. The limit is typically a percentage of the FD amount, often up to 90%-95%. Instead of breaking your fixed deposit, you can borrow money and repay it later with interest.
Who Can Use It?
This facility is available to individuals, sole proprietors, companies, and trusts who hold fixed deposits with banks. It is commonly used by people who require immediate liquidity but do not wish to forgo the benefits of FD interest income.
Why Use an OD Against FD Calculator?
Quick and Accurate Estimation
Calculating the interest payable and eligible overdraft amount manually can be time-consuming and error-prone. A calculator provides quick, accurate, and transparent results based on user input.
Helps in Financial Planning
By entering details such as FD amount, interest rate, and tenure, you can assess how much overdraft is possible and what your monthly or annual interest outgo will be. This is helpful for managing cash flow efficiently.
Comparison of Loan Alternatives
You can compare OD against FD with other borrowing options like personal loans or credit card debts. Most calculators show you the interest you would save, helping you make smarter financial decisions.
How OD Against FD Calculators Work
Key Inputs Required
To use an OD against FD calculator effectively, the following inputs are usually needed:
- FD Amount– The value of the fixed deposit held
- Loan-to-Value (LTV) Ratio– Usually between 75% to 95%
- Overdraft Interest Rate– Generally 1%-2% above the FD interest rate
- Loan Tenure– The expected time period you wish to use the overdraft
- Utilized Amount– How much of the overdraft you actually plan to use
Formula Used
Most OD against FD calculators use the following formula to estimate interest:
Interest Payable = (Utilized Amount à Interest Rate à Number of Days Used) ÷ 365
This formula assumes simple interest. Some banks may use compound interest if the overdraft extends for long durations.
Example Calculation
Scenario
Suppose you have a fixed deposit of â¹500,000 with a bank. The bank allows you to avail up to 90% of the FD value as overdraft, and charges 2% above the FD rate (say, FD interest rate is 6%, so OD interest is 8%). You need to use â¹200,000 for 60 days. Here’s how the calculation works:
- OD Limit = 90% of â¹500,000 = â¹450,000
- Interest = (â¹200,000 à 8% à 60) ÷ 365 = â¹2,630.14 approx.
This means you will pay around â¹2,630 as interest for the 60-day usage, without breaking your fixed deposit.
Benefits of Using OD Against FD
Lower Interest Rate
Interest charged on overdraft against FD is usually lower than credit cards or unsecured personal loans. This makes it a preferred option for short-term funding needs.
No Prepayment Charges
Most banks allow repayment at any time without extra fees. You only pay interest on the amount you use and for the number of days you use it.
Retain FD Benefits
Even when you take an overdraft, your FD continues to earn interest. This allows you to grow your savings while managing liquidity simultaneously.
Quick Approval
As it is secured by your own FD, the process is fast and requires minimal documentation. In most cases, it is approved instantly by banks.
Limitations of OD Against FD
Limited Loan Amount
The overdraft amount is directly linked to the FD amount. If your FD is small, your available OD limit will also be restricted.
FD is Locked as Collateral
Once the overdraft is active, you cannot close or break the FD until the overdraft is repaid. This reduces your flexibility.
Interest Still Applies
Even though the rate is low, interest still accumulates on the utilized amount. Failing to repay it in time may lead to higher costs in the long term.
How to Access an OD Against FD Facility
Eligibility Criteria
You must have a valid fixed deposit with the bank. Some banks may set a minimum FD amount, such as â¹10,000 or more, to avail of this facility.
Application Process
- Visit your bank branch or apply online
- Fill out an OD request form
- Submit your FD details and identification
- The bank processes and sanctions the overdraft instantly in most cases
Repayment Flexibility
OD accounts operate like current accounts. You can deposit and withdraw funds freely, and interest is charged only on the overdrawn balance.
Choosing the Right Calculator
Features to Look For
A good OD against FD calculator should offer:
- Customizable input fields for interest rate, tenure, and utilization
- Clear breakdown of interest payable
- Comparison with breaking FD or personal loan interest
Online Tools
Most banks and financial websites offer free OD against FD calculators online. You can use them any time to estimate your costs before applying.
An OD against FD calculator is a valuable financial tool for individuals and businesses who want to optimize liquidity while retaining their savings. By inputting basic details, you can assess how much you can borrow, for how long, and what interest you’ll incur. This helps in budgeting, avoiding unnecessary charges, and using your fixed deposit more strategically. Whether you’re managing personal expenses or business cash flow, this approach offers flexibility, lower costs, and ease of access all backed by the security of your own deposit.