Credit Card against Fixed Deposit (FD)

Credit cards are popular across the world as they offer an instant credit facility. They are considered a boon as they make spending easier and convenient. Plus, you do not have to carry cash at all times. However, banks do not offer credit cards to all applicants. Financial institutions are known to deny credit cards to customers if they have inadequate income or low credit score. This is where secured credit cards against fixed deposits come to the rescue.

In this blog, let us understand the concept of credit cards against fixed deposits, how do they work, their eligibility criteria, and everything else you need to know about them.

As the name suggests, a credit card against FD is issued by the bank to a customer in exchange for an FD that he pledges as collateral/security for the card. It is ideal for customers who do not have a credit history or have a low credit score*. Banks and financial institutions offer secured credit cards to customers looking to build their credit profile and who have an FD account with the bank.

Note: A credit score is a number that represents a consumer's creditworthiness i.e. their capability of repaying the money. The number falls in the range of 300 and 850. The higher the score, the higher the chances of the consumer getting a loan with favorable terms and conditions.

Generally, banks and financial institutions offer credit cards to customers based on their past credit history, income level, and other such factors. Such credit cards are unsecured in nature (meaning they are not backed by collateral or security which can be attached in case the cardholder defaults on the credit card payment). However, in the case of a credit card against a fixed deposit, you only require a fixed deposit account with the bank. This can act as collateral or security and the customer can borrow money despite low credit scores or unstable income. After issuing such a secured credit card, the bank puts a lien (a claim or a legal right) on the FD till the credit card is returned by the customer.

Let us look at the best credit cards against fixed deposits in India:

Credit card eligibility criteria may differ from one bank to the other depending on the purpose for which the card is availed. Some of the key eligibility parameters are listed below:

• The minimum tenure for a fixed deposit account must be 6 months.

• Applicants should have attained a minimum of 18 years of age.

• Applicants should have an FD account with the respective bank.

• A credit card against FD can only be availed by Indian residents and not available to foreign nationals.

• The minimum value of an FD account to apply for a secured credit card is ₹10,000.

The people who fall in any of the following categories can apply for a credit card against FD:

• House makers

• People with no income proof

• People with low-income jobs or entry-level jobs

• People with irregular income like retired peoplePeople who are looking to build their credit score from scratch

• People with a low credit score or poor credit history

Let us have a look at the key characteristics of a credit card against FD:

• Rewards:

  A credit card against FD offers multiple rewards such as cashback, reward points, and more to its customers.

• Interest-free period:

  Typically, almost all banks offer an interest-free period on secured credit cards for 48 days to 55 days.

• Credit limit:

  Generally, banks offer 75% to 85% of the fixed deposit amount as the total credit limit on the card.

• Reasonable FD amount:

  Banks offer an affordable fixed deposit amount ranging from ₹10,000 to ₹25,000 to apply for a secured credit card.

• Interest on FD:

  Cardholders can continue to earn interest on their fixed deposits while enjoying the facility of a credit card against FDs.

• Minimal paperwork:

  Applying for secured credit cards does not involve a lot of documentation.

• Minimum tenure:

  The minimum tenure of FD against which the credit card is to be applied is a minimum of 6 months.

You can enjoy the following advantages of having a credit card against FD:

• No income proof required:

  Since your fixed deposit serves as a security, there is no other income proof needed to apply for a secured credit card. This proves beneficial for freelance workers and homemakers.

• Helps to build a credit history:

  To avail of any credit-related products, often there is a requirement to have a previous credit history. Having a secured credit card helps you build a good credit history. This makes it easier to get other types of loans such as personal loans, house loans, educational loans, etc.

• Lower interest rates:

  Compared to regular unsecured credit cards, credit cards against FD carry a lower interest rate as the FD deposited with the bank can act as security.

• If you already have an existing fixed deposit with the bank, you are not required to submit any other additional documentation evidence of the place of residence or identity. You can apply for a secured credit card against FD straight away. The bank considers the same proofs submitted by you while opening the FD account. However, they may check the validity of the said proofs, for example, the proof of residence.

• If you are opening a new FD account with the bank, you will need to submit your proof of residence and identity proof. You will then be able to apply for a secured credit card against FD.

• In the case of an existing FD account holder, you can visit the nearest bank branch to apply for a credit card on FD. Or, you can also visit the bank's website to do the same.

• In the case of a non-FD account holder, you can visit the nearest bank branch to open an FD account. Some banks issue complimentary credit cards when you open an FD account. If not, you can fill up an application form for the same.