What if you suddenly have an expense or need money for some other emergency? Especially at a time when you neither want to break FD nor want to sell your units of mutual funds. In such a situation, salary overdraft comes in handy. If you get salary every month and you fulfill the bank conditions then you can take the help of salary overdraft. Salary overdraft is a type of revolving credit, which you get on your salary account. Whenever you need extra money, you can withdraw some extra amount from your salary account.
Salary overdraft facility as per the credit profile of customers and employer
The bank provides the facility of salary overdraft by looking at the credit profiles of certain customers and their employers. The bank gives a predetermined overdraft limit, from which the account holder can withdraw money in case of shortage of funds. Sahil Arora, Senior Director, Paisabazaar.com says that this facility of salary overdraft is very useful when there is a sudden expenditure. This facility also protects you from SIP, EMI or check bounce.
What is the salary overdraft limit?
According to Adil Shetty, CEO of BankBazaar.com, different bank rules and interest rates are also different regarding salary overdraft. But most banks offer overdraft facility up to one to three times the salary. In some cases the overdraft salary is capped at 80 to 90 per cent of the net salary. Some banks fix a cap of three to five lakhs. Whereas some other banks offer overdraft facility from one to one and a half lakhs. Some banks only provide overdraft facility up to Rs 10 to 25 thousand. For example, from HDFC and ICICI Bank, you can take overdraft facility up to three times your salary. At the same time, Citibank Suvidha Salary Account gives this facility up to five times the net salary or up to five lakh rupees. There is also a processing fee when you open your overdraft account and an annual renewal fee if you revolve the credit for more than a year.
Salary Overdraft – (Yearly Interest Rate in %)
City Bank – 16-19
standard Chartered Bank- 15.50
IDBI Bank – 11.05
ICICI Bank -12-14
HDFC bank – 15-18
Bank of Maharashtra- 10.05
High interest rates like credit cards
In terms of interest, salary overdraft proves to be as expensive as credit card. In case of salary overdraft, interest of one to three per cent may be charged every month. That is, the amount of money you withdraw from the salary limit attracts interest from one to three every month i.e. 12 to 30 percent annually. Apart from this, if you do not pay the interest on time, there is also a penalty. It also becomes expensive because of the processing fee.
(Article: Sanjeev Sinha)