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    Credit Card Against Fixed Deposit

    Credit cards against fixed deposit is a fairly new concept in the Indian banking industry. The primary aim of this scheme is to provide credit cards against the value of your fixed deposit. In such a setting, the bank offers lower interest rates on the credit cards, while being completely secured in terms of credit repayment by the customer. These cards denote secured credits which can be recovered by dissolving the fixed deposit.

    Currently in India, private sector banks such as ICICI Bank, Axis Bank, Kotak Mahindra Bank etc. and public sector banks including the State Bank of India (SBI), Central bank of India, Syndicate Bank etc. offer the option to avail credit cards against fixed deposit accounts. Generally, banks will offer credit cards of limit anywhere between 80-100% of the actual value of the fixed deposit.

    Why credit card against fixed deposit?

    Credit cards are great products that provide you with instant liquidity but come with high interest rates on the borrowed credit. Availing credit cards is easy if your yearly income exceeds Rs.5 lacs and you have a good credit history, but many don’t belong to this bracket. A professional or a self-employed individual earning something around Rs.2 lacs a year can still get a credit card, provided they have an impeccable credit history.

    For instance a fresher working in his first job usually won’t have a credit history or a substantial yearly income. People under this category cannot get a credit card unless they can prove their credit worthiness to the bank. But they can still receive a card if applying against their FDs by opening a fixed deposit account of more than Rs.20,000 with the bank.

    How it works

    A typical credit card against a fixed deposit will have credit limit of 80% of amount in the fixed deposit. Once you apply for the card, the amount in your fixed deposit will have a lien marked on it till you handover the card back to the bank.

    The interest rate on this card will be lower than what is offered on regular credit cards. The bank meanwhile can recover unpaid credit by dissolving your fixed deposit. This offers a win-win situation for both the borrower and the lender.

    Cards are issued with minimum requirements for the customers. In general, if a bank offers this product, you can easily avail a credit card without the associated credit checks such as credit score, repayment history, defaults in the past etc. – issues that inhibit easy dispersal of credit cards to customers.

    Benefits of credit cards against FD
    • Easy liquidity anytime you need the cash.
    • Very few, if any, documentation required to apply for credit card against FD.
    • Avoid foreclosure of fixed deposit when in need of urgent cash.
    • A grace period of 48-55 days to repay the borrowed credit interest-free.
    • Uninterrupted interest payment on fixed deposit regardless of credit card issuance.
    • No income eligibility requirements when applying for the card.
    • Cards sanctioned irrespective of credit history.
    • Secured credit that can be recovered by the bank without resorting to extreme measures such as legal recourse.

    These are some of the benefits of credit cards issued against a fixed deposit account.

    Risks to avoid

    Though these cards offer easy liquidity and are easily available, they are still offered against your savings deposited with the bank. Getting carried away while spending the credit limit and not being able to repay the credit in time can potentially strip you of your savings. This can affect your short term liquidity while affecting your long term asset allocation process.

    You have to ensure that the bills are paid in time to avoid complications with your fixed deposit account. Interest rates from credit cards, however low, can potentially compound to high levels, and so should be treated with caution.

    Major providers of CC against FD
    • ICICI Bank: ICICI Bank Coral Credit Card
    • SBI: Advantage Credit Card
    • Axis Bank: Insta Easy Credit Card
    • Central Bank of India: Aspire Credit Card (offered against Aspire term deposit scheme)
    • Kotak Mahindra Bank: Aqua Gold Card
    • Syndicate Bank: Classic/Gold Credit Card

    Overall, credit cards against FD is a great option for your short term liquidity requirements and if you are having trouble availing a regular credit card.

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