OVERDRAFT INTEREST CALCULATION

POSTED BY sundeep ON November 8, 2012 10:58 pm COMMENTS (4)

I HAVE AN OD ACCOUNT WITH A BANK FOR MY BUSINESS. THE ACCOUNT HOVERS AROUND -500000 TO + 500000 EVERY MONTH. BUT THEY TAKE INTEREST WHEN BALANCE IS NEGATIVE AND DO NOT CONSIDER POSITIVE BALALNCES OF THE MONTH. AS A RESULT I GET CHARGED AROUND RS5000 EVERY MONTH AS INTEREST.

IS THERE A WORK AROUND?

4 replies on this article “OVERDRAFT INTEREST CALCULATION”

  1. Yusuf says:

    Hi All,

    I have a similar situation like Prashant Gangwal as discussed in the forum.

    Buying home is my objective be it a Under construction or Ready to Move–Rent income could be generated.

    I don’t own any house in my name and live with my Parents additionally I have just rented flat on 11K which is next door.

    Budget : 1 BHK or 1RK not exceeding 25L to 27 L including Registration.

    My repayment capacity cannot exceed 20 K from monthly salary 50 K.

    I am salaried & don’t want to Over burden myself as Job securities is the concern here.

    I have 2 FD’s & OD is (TD + 2 %) is available for 90%
    21 L ( Mother Senior Citizen @8.93 Monthly Rs.15000/- )
    12 L ( Wife Normal @8.14 Monthly Rs. 8000/-) .

    I am a co owner in both bank account and FD’s .

    Both Mother & Daughter In Law has NO Other source of income other then Interest Income and Banks don’t consider this income for Home Loans.

    I have to compulsorily become co applicant wherein all regular EMI’s would be flowing out from my bank accounts.

    Alternates which I was thinking is to use 80% of value from Wife’s FD & then the remaining from Mother FD (so Interest Recd V/s Interest Paid = 0 on monthly basis).

    I also want to close Outstanding within 60 months 5 years which is not possible if I opt from Home Loan looking at my Monthly Income.

    From taxsaving point I am already investing in MF’s & Other schemes.

    Please let me know if taking 25-27 L OD Loan would be feasible or taking a Home Loan under both under construction / ready to move basis.

    Thanks & Regards,
    Yusuf

  2. Dear Sundeep, Please try to maintain the zero balance poisiton in your OD. whenever you are withdrawing, interest is to be paid by you. whenever you are keeping surplus in excess of your withdrawn amount, the surplus ‘ll not earn any interest.

    thanks

    Ashal

  3. BanyanFA says:

    Hi Sundeep,
    The way OD account work is exactly the way you have described – interest is charged only when account is in debit and no interest is provided for credit balances. The only work around is not to let your account go into debit (if you can). If you have a credit balance, you can aim to either shift it into an interest earning account or invest it in a money market mutual fund. However, assuming that you are into business and hence you would need to forecast your cashflows and invest your credit balances into money market funds to earn interest on as much balance as possible.

    Regards
    Banyan Financial Advisors (BanyanFA)

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