by Centre for
Investment Education and Learning
* * Overdraft is a
short term loan to meet a sudden requirement for cash.The bank places a limit
for the depositor to overdraw the savings account.
* * Banks provide
the overdraft facility for savings accounts in which they observe a regular and
steady inflow of funds.
* * Customers with
corporate salary accounts are also eligible for this facility to the extent of
one months salary.
* * The interest
rate on an overdraft is linked to the base lending rate of the bank,and can be
4-5 % higher than the base rate since this is an unsecured retail loan.
** When funds flow
into the savings account, the overdraft balance reduces & the interest is
charged only on unpaid balance.
Courtesy: Centre
for Investment Education and Learning (CIEL).Contributions by Gadre and Arti
Bhargava.
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