Your hard-earned money should be safe and secure in a savings account, where you can store your finances for unforeseen expenses or emergencies. Nevertheless, unexpected events or bad finance management occasionally result in an unintentional overdraft savings account.
We'll talk about what happens when you overdraft your savings account and how to prevent it.
What is an overdraft?
An overdraft from a savings account is a credit facility that allows withdrawals from a savings account even when the balance is zero or less. An example of a bank credit limit extension is an overdraft facility.
Depending on your relationship with the bank, each customer gets an allowed overdraft limit. The customer's withdrawal limit is what they can take out. Bank interest rates are only applied to the portion of the authorised limit that is used and are updated annually.
Are savings accounts also allowed to have an overdraft?
Yes, savings accounts also have the option to overdraft. Nevertheless, not all savings account types offer the overdraft feature. It is only available in certain savings account variants.
Kotak811 permits overdraft privileges for Senior Citizens' Grand Savings Accounts. For financially assisting elderly persons during difficult times, this feature is available on Kotak senior citizen bank accounts. Seniors can choose an overdraft capability of up to 85% against their fixed deposit with this senior citizen savings bank account, without having to liquidate their fixed deposit.
In addition to the overdraft fee savings account benefits, the account comes with the added benefit of Kotak ActivMoney and offers a savings bank interest rate of up to 7% annually. Higher returns can be obtained by the account user in Kotak ActivMoney through the automatic transfer of the excess balance deposit in a fixed deposit.
Must Read: Common Banking Fees: How To Avoid It & Save Money?
Benefits of overdraft on personal loans
- Quick access to money at any time or location: You always have access to the money in your account, whether it's for organising a major event or handling an unforeseen expense.
- Use as you choose, paying for what you use: You can freely use and repay as you see fit. The interest would only be charged on the amount you use.
- Paybacks and withdrawals directly: Control the payments and withdrawals made directly from your bank account.
- Adaptable limit: Fixed restriction of one year, with a drop line limit after that, based on the tenure and provided cap.
- Documentation: The documentation is designed to be user-friendly and accessible to all.
- Making withdrawals: You can easily make multiple withdrawals using internet transactions through the Kotak811 platform.
- Request for demand draft orders: Place a request for a demand draft order conveniently through Kotak811’s banking services.
- Pay credit card and utility bills: Simplify your bill payments by settling your credit card and utility bills through our online banking platform.
- Authorised bank credit limit: An overdraft is provided for a predetermined amount. Each borrower may have a separate credit limit.
- Interest rate: The amount you take out as a loan is subject to interest charges. By the end of the month, the interest rate is calculated and billed to your account. If, at the end of the month, you are unable to pay the overdraft amount as scheduled, interest will be assessed on your newly created principal component, and the interest component will be added to your main component.
- No prepayment fee: Generally, a prepayment fee is associated with any loan prepayment. But in the case of the savings account overdraft option, no such fee is associated with it. Additionally, you are not required to repay the borrowed amount in Equated Monthly Instalments (EMIs) when using an overdraft facility. All you have to do is pay back the amount owed on your overdraft in full from your savings or current account.
Both working capital needs and company cash flow can be satisfied with overdraft. Companies frequently have to wait for their clients to pay, which causes them to also postpone their own payments.
Businesses are allowed to sign checks for their clients that exceed the available funds in their accounts when they have overdraft support for their current accounts. It keeps checks from being dishonoured and protects the company's reputation.
Nevertheless, only current bank account users with a solid credit score and payback history are eligible for this facility. Additionally, there is an annual cost associated with the overdraft facility, and users are free to stop using it at any time.
Must Read: Overdraft Against Fixed Deposits: Features and Eligibility Explained
How to Get an Overdraft Facility?
You can have financial freedom with an overdraft facility. It allows you to cover your expenses when there are financial gaps. It might assist you in averting awkward situations and preserving a positive working relationship.
- You must go directly to your bank and submit a written application to request the overdraft facility.
- Additionally, you have the option to use the overdraft feature online. The money can be transferred to your bank account in two hours and withdrawn whenever needed.
- The bank may approve or deny your application for this feature depending on how well you can repay the loan.
- You can use the Smart Overdraft feature, which connects your current and savings accounts with Kotak811, to enable overdrawing on your savings account.
Conclusion
One of the smartest ways to obtain cash when you need it, is by using the overdraft option after you open an online savings account. The amount borrowed through the overdraft facility can be repaid over a variety of flexible terms and methods. To use this function, you must first open a bank account. After that, you must be aware of all the features associated with the overdraft option before moving forward.
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