Key Takeaway
Overdraft interest is charged daily on the outstanding utilized amount, making it flexible but expensive (12–18% p.a.). Using a sweep-in FD linked to your savings account is a cheaper alternative.
Overdraft Cost Breakdown:
- Utilized Limit (funds withdrawn): ₹1,00,000.
- Daily interest charges: ₹32.88 per day.
- Interest charges for 15 utilization days: ₹493.
- Overdraft interest is only charged for the exact amount and days used. If you keep the balance at ₹0, you pay zero interest.
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Frequently Asked Questions
How is overdraft interest calculated?
Overdraft interest is calculated daily on the utilized balance using the formula: Interest = (Utilized Balance * Interest Rate p.a.) / 365. The accumulated interest is debited monthly.
Do I pay interest if I don't use my overdraft?
No. You pay zero interest on the overdraft line if you do not utilize the credit. Interest is only charged on the utilized funds.
What are the benefits of an overdraft account?
It offers emergency liquidity, charges interest only on utilized cash, allows flexible repayments, and handles working capital fluctuations efficiently.
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