Do you need to break your bank fixed deposit when you need funds in an emergency or for the short term? For such situations, many banks offer an overdraft facility against assets like property, fixed deposits, mutual funds and insurance holdings.
Some banks even offer the facility of overdraft against salary accounts. This facility allows account holders to withdraw funds more than what is maintained in their accounts.
To have access to this facility, the account holders need to apply separately to the bank. Some banks charge a one-time fee or processing charges for offering this facility.
Under the salary overdraft facility, banks extend credit based on the take-home salary of the account holder. It is usually 2-3 times of the monthly salary.
HDFC Bank, for example, offers the freedom to customers use salary overdraft facility through cheques, ATM, online transfer, etc. Interest is charged on the amount utilised as overdraft. Banks have a minimum and maximum limit in case of an salary overdraft facility. For example, in case of HDFC Bank, the minimum and maximum limit is Rs 25,000 and Rs 1,00,000.
The repayment period varies depending on banks. In case of SBI, the overdraft is repayable in 6 months.
The maximum limit in case overdraft facility granted against different assets is much higher.
Axis Bank, for example, gives credit up to 85 per cent of the value of your fixed deposit with repayment period of up to the remaining tenure of the underlying fixed deposit.
Axis Bank charges interest rate of around 2 per cent higher than that of the fixed deposit rate.
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