Credit Card Against Fixed Deposit

Credit Card Against Fixed Deposit (FD) is a secured credit card. It has a credit limit equal to the value of the FD. The norms for this type of credit card are more flexible than unsecured credit cards. This is because the bank has collateral (FD) to cover for risks in case the user defaults. In turn, a person with an insufficient credit history or not-so-good credit score can use this opportunity to avail of a credit card.

The credit card application can be rejected by the financial institution on the grounds of an unfavorable CIBIL score or poor credit history. In this case, Credit Card against Fixed Deposit is the best option as the lender does not require any past repayment history or CIBIL Score.

• Individuals with a low CIBIL score or no credit history can avail of the facility of the credit card by pledging a fixed deposit in the name of the bank to procure a credit card.
• This may help the individual to build a better credit history which may help him/ her in the future.
• The bank will check the repayment capacity and debt to income ratio of the applicant along with the Fixed Deposit fund before approving the credit card request.

In this post, we will discuss features of a Credit Card against Fixed Deposit, the role of FD in a secured credit card, the impact of this type of card on FD, eligibility criteria, and frequently asked questions.

Features of Credit Card against Fixed Deposit

Credit cards are quite famous in today’s world when people are addicted to online shopping and they find attractive discounts on e-commerce websites. Also, credit cards serve as instant credit tools with prefixed limits, the balance of which can be paid in subsequent days without any interest. In today’s world of digital payments, carrying cash is not a good idea.

Here is the Credit Card against FD features:

1. Interest-free Period: One can avail the benefit of a credit-free period for all the transactions done through the credit card, which may range from 20 days to 58 days, depending upon the date of making the transaction.
2. Fixed Deposit: To avail of the facility of Credit Card against Fixed Deposit, you need to make an FD of amount same as the limit of credit card intended to be availed.
3. Documentation: The processing of such a credit card requires minimal paperwork.
4. Reward Points: All the credit cards come with a common benefit of reward points (generally higher than the debit cards). One can redeem the reward points earned in every transaction and shop more.
5. Interest on FD: The banks continue to credit interest on fixed deposits kept as collateral for a credit card.
6. Security: The FD kept as collateral in Credit Card against Fixed Deposit should be made for tenure not less than 6 months.
7. Limit of the Card: The limit for Credit Card against Fixed deposits varies from bank to bank. Some banks offer a limit of as much as 100% of the value of a fixed deposit, whereas some may offer only 80%. In any case, a limit of at least 75% shall be given by the bank.

Role of Fixed Deposit in a Secured Credit Card

Here are more details:

• Credit Cards are generally sanctioned based on CIBIL score/past history in debt repayment.
• These cards being given based on previous/ present income and previous repayment history are unsecured, posing a higher credit risk to the lender.
• In some cases, there may be the absence of credit history or it may be poor, which creates a suspicion about the creditworthiness in the mind of the sanctioning authority, and hence, credit card requests of such individuals may be denied by the banks/ financial institutions.
• In the case of secured credit cards, a fixed deposit is obtained by the bank instead of which the card is issued to the applicant having a limit equal to or lesser than the value of the fixed deposit.
• The FD acts as a security to the bank and the bank in this case does not ask for any other formality.

Eligibility criteria for Credit Card against Fixed Deposit

However, the eligibility criteria for Credit Card against Fixed Deposit may vary from bank to bank, a list of general eligibility conditions are listed below:

• The applicant should be an Indian national and must have attained the age of 18 at the time of applying for the credit card.
• The minimum value of a fixed deposit for a Credit Card against a Fixed Deposit is Rs. 10 thousand and the said FD should have been opened for at least 6 months.
• The applicant should have FD with the respective bank. In absence of the same, the bank may ask the applicant to transfer the funds to that bank, open a fixed deposit account and apply for Credit Card against Fixed Deposit after marking a lien on the FD.

Impact of Credit Card on Fixed Deposits

There is no impact of the credit cards on your fixed deposit account. You continue to receive the same interest rate that was set on opening the account. However, the impact of credit will be seen on the bill payment. If you have not made the payment, the outstanding amount will be adjusted with your FD. Thus, if you do not want to disturb your savings, always make your bill payments on time.

It further helps in building your credit score. Further, in the case of an emergency, you can use your credit card rather than close your fixed deposit account. Banks offer enough time to make repayments of the outstanding bills. Thus, taking loans becomes easier.