Is Issuing Credit Card Against FDs Favourable? - Key Perks & Credit Limit

An FD-backed credit card is a financial tool directly linked to a fixed deposit (FD). The FD, in this case, acts as collateral and helps the credit card holder secure a credit limit. This way, FD-backed credit cards provide applicants with a safer borrowing experience in comparison with unsecured credit cards.

An FD-backed credit card is a financial tool directly issued against your fixed deposit, as it acts as a collateral and helps the credit card holder secure a credit limit.

Under this category of credit cards, a user has a safer borrowing experience unlike unsecured credit cards. It proves useful for those individuals, who have limited credit history.  

The key objective of top institutions with such  credit card products is protect themselves against issuing loans after confirming with respective banks about solid fixed deposit collateral.

Also Read: Tata Motors Shares Drop 4% Intra-Day on JLR Cyberattack Concern

How Does FD-backed credit card function?

When an individual places FD as collateral to get a credit card, the limit generally fall between 70-90 per cent of the total fixed deposit amount.

Further, the fixed deposit remains untouched and even continues to earn interest while serving as security.

If credit card repayments are missed, the bank can recover pending dues by encashing the fixed deposit. In normal circumstances, the credit card functions like a regular credit card for meeting day-to-day expenses and credit card bill payments.

Key Perks of FD-backed Credit Card

Favourable approval terms with collateral, and no requirement for a strong credit score.

Continuous interest is earned on the fixed deposit amount, totalling about 6-7 per cent per annum, even with the credit card.

Such a credit card can help build or rebuild credit history if the cardholder makes sincere efforts and ensures that all payments are made on time.

The applicable interest rates in comparison to unsecured credit cards are lower due to reduced risk. The initial pledge collateral fixed deposit ensures that the overall risk is reduced immensely.

Such credit cards also provide holders with lucrative offers, cashbacks, rewards and other associated benefits.