Credit Card Against FD & How to Apply For It?

The Credit Card Against FD is a revolutionary product. So, it combines the benefits of credit flexibility with the backing of a fixed deposit. This financial instrument allows individuals to borrow credit by pledging their fixed deposit as a security while getting a steady income from FD interest rates. This provides an inclusive and secure form of guarantee towards investment. This post aims to provide an overview of the basics of Credit Cards Against FD, highlighting their benefits and guiding readers through a simple procedure on how to apply for one. Let’s check. 

What Is a Fixed Deposit (FD)?

Before getting into the FD-based credit card, let’s first understand what an FD or fixed deposit is. A Fixed Deposit (FD) is a safe investment where an individual puts in a lump sum with the bank or financial institution for a period to remain defined. 

The deposited sum accrues an interest, occasionally higher than that of a conventional savings one. The depositor gets both the principal and interest at maturity. At present, FDs are a popular investment option because of the attractive FD Interest Rates. Moreover, FDs offer capital protection and a guaranteed return, which makes them safe investments as well as a preferred option by people looking for an assured means of increasing their savings within a given period.

Understanding Credit Card Against FD

A secure credit card is a credit card against a fixed deposit or FD. To acquire a credit card based on FD, one must have a fixed deposit account. Many of the banks provide this facility with their FDs.

The striking feature of this credit card is that the linked FD is lien-marked. So this means that the FD acts as collateral. The credit limit is usually around 80%-90% of the FD value. Importantly, the lien-marked FD continues accruing interest.

If a cardholder fails to pay the same monthly credit bill, the bank can recover its outstanding amount by redeeming the FD linked to it. The fees of a credit card against FD are often lower than an unsecured credit card, and such cards are easier to obtain.

How Does A Secure Credit Card Work?

When you deposit money in an FD account with the bank and apply for a credit card against FD, there is no need to submit any other source of income proof.

The FD acts as the security deposit for the credit card. In case of failure to pay the credit card bill, the bank or issuer can repossess your deposit. A secured credit card in good standing for two years would make the bank or issuer unlink your FD.

Maintaining a good standing of the credit card means active usage, payments made within spending limits every month, timely repayments, and a regular spending pattern.

Reasons To Apply For Credit Card Against FD

Credit Card against Fixed Deposit (FD) is a wise decision for people who find themselves in certain financial situations that can compromise their ability to get traditional unsecured credit cards.

1. Unable To Get A Credit Card

To begin with, if at some point you realise that you require a credit card but have failed to get one because of a lack of credit or poor credit history, then the Credit Card against FD is offered as an alternative option. However, the credit limit is guaranteed by the FD. Hence, risks to the issuing bank are reduced, making it easy for those with low or bad profiles.

2. Irregular Source Of Income

People who have an unpredictable or irregular income can also consider a credit card against FD. For instance, freelancers may need help to qualify for traditional credit cards due to fluctuating incomes. The safety of the FD provides an element of certainty to the bank and increases its likelihood of approving those with a fluctuating income. 

In addition, if you do not have traditional income proofs like pay slips or letters of employment, applying for a Credit Card against FD can be beneficial. This serves a large population of people, such as freelancers, homemakers, and so on, who may have different sources of income.

3. Individuals With Entry-Level Job

People starting their careers with low incomes and entry-level professionals find it hard to get credit cards with favourable terms due to the lower spending power. The Credit Card against FD acts as an entry point to the credit market for individuals from the early stages of their careers by lending them funds without strict income requirements.

Features Of Secure Credit Card

1. Lower interest rates

Most credit cards against FDs have a lesser interest rate than standard credit cards, making them applicable for borrowing money on your FD and not having to worry about high-interest rates.

2. Improves your credit score

The act of using a credit card against FD can make it more accessible for you to get hold of loans in the future because it will help you enhance your credit score. When this credit score rises, it becomes easy to acquire traditional credit cards that have high limits and superior rewards.

3. Safety

In India, fixed deposits are a safe investment option because they give good returns, yet your money is still kept safely. An FD-backed credit card presents no risk.

4. Minimal Documentation

Using a credit card against FD does not require any documentation since you already have all the necessary documentation with the bank. 

Steps To Apply For a Credit Card Against FD

To apply for a secured credit card, you need to maintain the bank’s fixed deposit account. Thus, you would need to visit the bank branch to open an FD account first, followed by a credit card.

Some credit cards may be handed out as complimentary following an opening of an FD with the bank, and others have to be applied for.

When you open your fixed deposit with the bank, you can request a credit card at the same branch. Alternatively, you can fill in the online application form.

Conclusion

The Credit Card Against FD is a unique financial tool that has elements of a credit card and the security of fixed deposits. Individuals can use this facility to meet their current needs and build their credit history. Like any other financial product, it is vital to exercise caution in making this decision, taking into consideration your investment and ability to invest objectively. Check with Wint Wealth to know more about such features and benefits.