Everything You Need to Know About Credit Card Against FD

Ever wished you could unlock the spending power of your fixed deposit (FD) without breaking the FD itself? Well, there's a convenient tool for that: a credit card against FD. This blog dives deep into everything you need to know about this unique financial product. We'll explore how it works, its benefits and drawbacks, eligibility criteria, and how it compares to traditional credit cards. So, whether you're looking for a way to access extra credit or simply want to understand this option better, keep reading and unlock the potential of your FD!

What is a FD Backed Credit Card?

There are 2 main types of credit cards: unsecured and secured. Both allow you to use credit for immediate purchases. Unsecured cards rely on your credit history and income to determine your credit limit. Secured cards, on the other hand, use a deposit in your bank account (like a fixed deposit) as security.

If you're new to credit or haven't built a credit history yet, getting an unsecured credit card might be difficult. This is where FD-backed credit cards come in.

These cards allow you to apply for credit based on your existing fixed deposit. Instead of relying on your credit score, the bank uses your fixed deposit as a guarantee. The credit limit you receive is typically a percentage of the amount you have deposited in your fixed deposit account.

Features of Credit Cards Against Fixed Deposit

Affordable FD Requirement

Unlike traditional credit cards that rely on credit score and income verification, credit cards against fixed deposits (secured credit cards) typically have a minimum deposit requirement that's quite manageable. This amount usually falls between Rs.10,000 and Rs.20,000, making it accessible to a wider range of individuals.

Credit Limit Based on Deposit

The credit limit you receive with a secured credit card isn't based on your credit history but rather on the amount you have deposited in your fixed deposit. Banks typically offer a credit limit that's between 75% and 85% of your fixed deposit value. So, for example, a Rs.20,000 fixed deposit could translate to a credit limit of Rs.15,000 to Rs.17,000 on your card.

Simplified Application Process

Applying for a secured credit card generally involves less paperwork compared to traditional credit cards. Since your fixed deposit serves as collateral, there's less need for extensive income verification or other documentation. This can be a benefit for those who may have limited credit history or are new to the credit card system.

Minimum Fixed Deposit Term

It's important to note that the fixed deposit you use as security needs to be for a minimum period. This minimum tenure typically falls around six months. Once the fixed deposit matures, you'll have the option to renew it or close it depending on your credit card needs.

Interest-Free Grace Period

Like many traditional credit cards, secured credit cards often come with an interest-free grace period. This period usually ranges from 48 to 55 days. During this time, you can make purchases using your credit card without incurring any interest charges, as long as you pay your outstanding balance in full by the due date.

Potential for Rewards

While not all secured credit cards offer rewards programs, some do. These programs can incentivise responsible credit card use by offering benefits like cashback or reward points on your purchases.

Continued Interest on Fixed Deposit

A significant advantage of secured credit cards is that you continue to earn high interest on your fixed deposit even while it's pledged as collateral. This means your money continues to grow while you have access to a credit line.

Eligibility Criteria for Getting a Credit Card Against FD

To apply for a credit card secured by a fixed deposit (FD) in India, you'll need to meet some basic requirements. Here's who is eligible:

• Individual Residents of India: The credit card is linked to your FD and requires you to be a resident with a valid address.
• Existing Fixed Deposit: You'll need to have a fixed deposit account with the bank issuing the credit card.

The following individuals or accounts are not eligible for this type of credit card:

• Hindu Undivided Family (HUF)
• Minors
• Foreign nationals
• Third-party applicants
• Business entities: Partnership firms, Trusts, and Societies
• Tax-saving fixed deposits
• Non-Resident Indian (NRI) fixed deposits
• Fixed deposits already used as collateral: If you've already taken a loan or overdraft against your FD, it cannot be used for a credit card.

Who Should Apply for a Credit Card Against FD?

Credit cards against fixed deposits can be a good option for several groups:

• Individuals with limited credit history: This includes people who are new to credit or haven't used credit cards much.
• Those with irregular income: Freelancers, homemakers, and people with variable income sources may find these cards easier to qualify for.
• People who lack income documentation: Traditional credit cards often require proof of income, but secured cards against FD deposits may not.
• Those seeking to build credit: By using the card responsibly and paying bills on time, you can improve your credit score over time.

Benefits of Getting a Secured Credit Card Against Your Fixed Deposit (FD)

1. Build Credit Without History: An FD-backed Credit Card can be a good option if you're new to credit cards and don't have a credit history yet. Using and repaying the card responsibly can help you build a positive credit score over time.
2. Continue Earning on FD: The good news is that when you use an FD-backed Credit Card, your fixed deposit (FD) continues to earn interest at the normal rate. You get the benefits of a credit card while still growing your investment.
3. Simpler Application Process: As mentioned earlier, applying for an FD-backed Credit Card often involves less paperwork compared to regular credit cards. This is because the bank already has your information on file from your existing FD account, making the process faster and easier.
4. Potential Rewards: Many FD-backed Credit Cards offer rewards programs just like other cards. You might be able to earn cashback, discounts, or other benefits depending on the specific card you choose.

How to Apply for a Credit Card Against Fixed Deposit?

The application process can differ slightly depending on whether you already have an existing FD with the bank issuing the credit card. Here's a breakdown for both scenarios:

For Non-FD Account Holders:

1. Open a Fixed Deposit: You'll first need to establish an FD with the bank where you wish to obtain the credit card. The minimum FD amount required will vary by bank, but typically ranges from ₹10,000 to ₹25,000 or higher. There may also be restrictions on the type of FD allowed (e.g., minimum tenure).
2. Apply for the Credit Card: Once your FD matures or reaches a certain point (depending on bank policy), you can proceed with applying for the credit card secured by your deposit. The application process is usually similar to applying for a regular credit card, with additional information required regarding your FD.

For FD Account Holders:

1. Express Your Interest: If you already have a qualifying FD with the bank, you can approach them directly and express your interest in obtaining a credit card against it. The bank will guide you through the specific steps involved.
2. Application and Approval: The application process might be simpler, potentially done online or through the bank's mobile app. You'll likely need to provide details about your existing FD and any additional information requested by the bank.

Frequently Asked Questions (FAQs)

1. Can I apply for a credit card against FD online?

   Yes, you can apply for a credit card against FD online regardless of whether you're a new or existing FD account holder with the bank.

2. Can I avail myself of an interest-free period with a credit card against FD?

   Yes, you can enjoy an interest-free period of 48 to 55 days with a credit card against FD.

3. Is it a good idea to take a credit card against fixed deposit?

   Credit cards against FD typically come with a low credit limit. Responsible use can help improve your credit score.

4. Does the credit limit on a credit card against FD increase?

   Yes, you can increase your credit limit by depositing more money into your FD.

5. Can I deposit money using a credit card?

   No, you cannot deposit money using a credit card against FD.

6. What is the minimum amount of fixed deposit required for a credit card?

   The minimum amount required for a fixed deposit to qualify for a secured credit card varies depending on the bank. It can range from Rs. 10,000 to Rs. 25,000 or more.

7. Which banks in India offer credit cards against fixed deposit?

   Some popular banks in India offering credit cards against FD include Kotak Bank, Axis Bank, Central Bank of India, BOB, ICICI Bank, and State Bank of India.

8. Can I get a credit card against my FD if the tenure is only 4 months?

   No, most banks require a minimum FD tenure of 6 months to be eligible for a credit card against FD.

9. Who can benefit from a credit card against FD?

   Individuals who can benefit from a credit card against FD include:

   • People who live in Blacklisted Areas
   • People who just started a job
   • People with no or low credit history
   • Individuals seeking credit, such as homemakers and students
   • Employees of companies with a bad reputation

10. Can I close my FD early with a credit card backed by it?

    No, you cannot typically close the FD entirely. Some banks may allow partial withdrawal, but the amount will depend on your credit limit and FD amount.

11. What happens to my credit card if I close my FD?

    The credit card needs to be closed before you close your FD as they are linked. Some banks offer credit cards against FDs with auto-renewal to avoid this issue.

12. What is the difference between a secured and unsecured credit card?

    Unsecured credit cards are issued based on your income, credit history, employment, etc., while secured credit cards require collateral, like a fixed deposit, to be approved.

13. Can foreigners get a credit card against FD?

    No, this facility is generally not available to foreign nationals.

14. Can I get 100% of my FD amount as a credit limit?

    No, banks typically provide a credit limit of up to 80% of your FD amount.

15. Can I use my credit card against FD to withdraw cash at ATMs?

    Yes, most banks allow ATM withdrawals with a credit card against FD.

16. I don't have income proof. Can I still get a credit card?

    Yes, if you have a fixed deposit and your bank offers credit cards against FD, you may be eligible.