Fixed deposits as we all know are the safest form of investments. A popular choice among first time investors, fixed deposits offer a higher, more competitive rate of interest as compared to a savings bank and the large deposit required also ensures the returns are good. The invested capital is safe, it provides guaranteed returns and is protected in case of failure of the bank. However, these fixed deposits have a few drawbacks as well. Firstly they are very passive and an active investor would find it quite slow and uneventful to invest in a fixed deposit. Secondly and perhaps the biggest drawback of them all is that once the investment capital is deposited into an FD, the investor has no access to his funds and if there is a certainty in life it is that there are no certainties. Unforeseen emergencies seldom announce themselves before appearing if large sums of money have been deposited into an FD, the need for money is all the more pressing since withdrawing the funds will void any interest accumulated by the funds.
Overdraft facility : Access cash without breaking investments
However, the overdraft facility offered by fixed deposits these days have the power to soften such circumstances. An overdraft facility in essence, is a line of credit or a loan offered to an individual against his assets such as a fixed deposit. In such scenarios, where an investor has deposited the capital into an FD and requires access to funds, they can use the overdraft facility to procure cash without breaking the investments. The overdraft facility acts similar to a personal loan and the approved loan amount can be used for a variety of purposes. The interest charged will be slightly higher than the interest rate of the fixed deposit. The interest in an overdraft facility is charged only on the loan amount that has been utilized. Such overdraft facilities have no structured schedule of repayment but most banks have a minimum line of credit beginning at RM 10,000. Some banks also offer various features to make the overdraft facility more attractive such as offering personalized cheque books and higher overdraft amounts ranging up to RM 250,000.
Requirements for availing the overdraft facilities may vary from bank to bank but a general list of requirements are the individual must be a holder of FD receipts or ASN/ASB certificates, a photocopy of the identity card, a copy of the latest pay slips (Past 3 months), latest BE form with tax payment receipts.
Overdraft facilities have certain charges levied onto them such as stamp duty on indemnity for any Fixed Deposit receipts that have been lost and a service charge for replacing lost FD receipts. Overdraft facilities offer people a great way to plan for short term financing needs without breaking down investments but these need to be used effectively else would negate any benefits received from FD’s and if the funds are misused and the borrower is unable to pay back the overdraft amount then their investments can be liquidated by the bank.
Below are some of the overdraft facilities offered by key banks:
Citibank offers an overdraft facility against time deposits The overdraft facility from Citibank is a hassle free procedure with attractive rates that provides access to funds without liquidating investments. The minimum line of credit offered is RM 10,000 and has features such as flexible repayment, personalised cheque books and 24 hour phone banking services.
Alliance Bank Overdraft against Fixed Deposit
The overdraft facility provided by Alliance bank has an attractive offer of being provided at a 1:1 basis against the amount placed in the Alliance Gold Fixed deposit. It offers the same benefit of being able to access funds without breaking investments. The criteria for alliance Gold FD is more specific and requires the primary account holder to be 40 years of age and requires a minimum deposit of Rm 30,000.
RHB Overdraft Facility
The overdraft facility by RHB Bank is has features such as no fixed monthly repayments and allows the customer to withdraw the amounts repaid. It also charges interest only on the loan amount utilized.
OCBC Overdraft Facility
The OCBC bank also offers overdraft facilities. OCBC provides an overdraft standby wherein the interest is calculated only on the amount used and requires that a minimum amount of Rm 5000 be deposited in the FD.
UOB Overdraft Facility
The UOB overdraft facility provides a revolving line of credit where interest is charged on the amount used and calculated on a daily basis.