Loan Against Bank Fixed Deposit: All You Need To Know

Time to read: 7 mins | June 7, 2018

A Fixed Deposit (FD)bank as we all know is a secured way to generate wealth, particularly for conservative investors. It takes care of your liquidity needs, addresses short-term goals, and can even help you in tax planning (a 5-yearTax Saver bank FD ).

But along with these attributes, a bank FD also stands as the last resort on a rainy day, when you are dire need of funds. Yes, it helps in contingency planning!

Broadly, you have two options during an exigency: liquidate bank FD, or take overdraft facility. If you choose the former, it can disrupt the path to wealth creation and accomplishing financial goals.

Hence, the latter, i.e. taking an overdraft facility against your bank FD is a sensible thing to do because you continue to earn interest on the bank FD and get access to funds. But there should be no lien on the bank FD if you wish to take an overdraft against it.

Axis Bank’s loan against fixed deposit facility is for everyone who holds/owns a valid Axis Bank FD. All you need is:

• Fixed deposit receipts duly discharged in favour of the bank
• Duly filled and signed application form

That’s it!

Axis Bank’s overdraft against fixed deposit will you provide access to liquidity upto 85% of the value of your Fixed Deposit/s with Axis Bank. The minimum loan amount, however, is Rs 25,000.

Axis Bank grants overdraft facility with a cheque book, ATM card, internet banking and mobile banking facilities.

How much is the rate of interest?

The interest rate for overdraft against FD is comparatively lower than for personal (unsecured) loans –– to be precise, just 2.0% above the interest rate earned on your bank FD.

Note that interest is charged on actual amount utilised and for the tenure of utilisation. There are no EMI or post-dated cheques required as in the case of other loans.

How much can be the loan tenure?

Loan against bank fixed deposit is a secured loan, the collateral being the bank FD. Hence, regarding the tenure of the loan, it is not specific as long the bank FD is in force. And you have the flexibility to repay the loan during that time period.

How to apply for overdraft against bank FD and the process?

Customer has to visit nearest Axis bank branch to avail the facility and fill the application form. The bank will thereafter follow its process and in case you have any query/s, the branch executive shall provide comprehensive information.

The sanctioning of the loan will be subject to a thorough assessment, as per the extant instructions and credit policy of the bank. The availability of margin and security will not be a substitute for the due diligence process.

Branch has to raise SR In I-leverage to open the OD account by central team. After checking all details central team opens the account which customer can start to utilize.

On repayment of the loan in full, the bank shall release all the securities held. And in case the bank decides to retain the security, you, the borrower, will be notified about the remaining claims and the documents under which the bank is entitled to retain the security till the relevant claim is paid/settled.

Note that unless the loan against bank FD is repaid in full, you, the borrower cannot prematurely close the bank FD.

Shortly the facility will be provided on digital platforms like internet banking and mobile banking.

Are there any prepayment charges for early loan closure?

No, unlike other loans there are no prepayment charges for early loan closure.

Overall, here are the merits of opting for loan against bank fixed deposit:

• Upto 85% of the value of your Fixed Deposit(only Axis Bank Fixed Deposits)
• Don’t break your Fixed Deposit, when in a dire situation; take a loan against it instead
• Particularly useful means of credit when you do not have a credit history
• The application process is hassle-free compared to other loans
• Likewise, compared to other types of loan, the approval and disbursement process is quick
• The rate of interest is lower than for personal (unsecured) loans
• Interest is charged only on actual amount utilised and for the tenure of utilisation No EMI or post-dated cheques required
• No system of EMIs, you pay at your convenience as long as the bank FD is in force
• You do not have to defray for prepayment of loan against bank FD
• Your other investments assigned for other important financial goals are left undisturbed
• The path to wealth creation is uninterrupted

To conclude…

Managing contingency needs is an important part of personal finance, much as planning for defined financial goals. It is important to address liquidity needs, because uncertainties and exigencies do not come calling.

Taking an overdraft against your asset during exigencies, for example your bank FD, will prove far more sensible than liquidating or getting rid of your investments over time built with hard-earned money to address certain financial goals.

Hence, if you borrow prudently, within your means and repay diligently, it will be in the interest of your long-term financial wellbeing and add to your credit worthiness.

Happy Banking!

Disclaimer: This article has been authored by PersonalFN, a Mumbai based Financial Planning and Mutual Fund research firm known for offering unbiased and honest opinion on investing. Axis bank doesn't influence any views of the author in any way. Axis Bank & PersonalFN shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.