Tips for Choosing a Credit Card Against Fixed Deposit

New Delhi : A credit card against Fixed Deposit (FD) can be a practical option for many, especially if you are new to credit or have a low credit score. This type of credit card offers you the ability to build your credit profile while leveraging the security of your FD. Before you apply for such a credit card, it’s essential to evaluate your options carefully to ensure you make the most suitable choice.
What Is a Credit Card Against Fixed Deposit?
A credit card against FD is a secured card that uses your Fixed Deposit as collateral. Unlike traditional credit cards, which rely heavily on your credit score for approval, this card is issued based on the value of your FD. The credit limit typically ranges between 75% and 90% of your FD amount, and your FD remains locked during the card tenure.
These cards can be beneficial if you are:
● Building or repairing your credit history
● A first-time credit card user without an established credit score
● Looking for a simple and reliable way to access credit while keeping your investments intact
Tips to Consider When Choosing a Credit Card Against FD
1. Evaluate the FD Requirement
Different banks have varying minimum FD requirements. For instance, some may require a minimum FD of ₹5,000, while others might set the bar at ₹20,000 or higher.
Consider your financial capacity and long-term goals. Ensure that the amount you lock into the FD does not leave you financially constrained for emergencies.
2. Understand the Credit Limit
The credit limit is typically a percentage of your FD value, ranging from 75% to 90%. For example, if your FD is ₹50,000, your credit limit might be between ₹37,500 and ₹45,000.
Choose a card that provides an adequate credit limit for your spending needs. However, use this credit limit wisely to maintain a low credit utilisation ratio (ideally under 30% of the limit) to boost your credit score over time.
3. Compare Fees and Charges
Some credit cards come with hidden fees, such as joining fees, annual charges, or penalty fees for late payments. Even if the card offers great perks, high fees might outweigh its benefits.
Look for lifetime-free cards or those with nominal fees, especially if you’re just starting to build credit. Read the fine print to understand all costs associated with the card.
4. Review Interest-free Period and Rates
The interest-free period allows you to repay the balance without incurring interest. If you exceed this period or fail to make timely payments, the bank charges interest, often ranging from 24% to 40% annually.
Plan your repayments to ensure you pay the full amount due within the interest-free period. Avoid rolling over balances, as this incurs high interest rates, nullifying the benefits of the card.
5. Check for Additional Benefits
Credit cards against FDs may not offer as many perks as unsecured cards, but some still provide cashback, reward points, or discounts on shopping, dining, and travel.
Compare benefits across different cards. For example, some cards may offer fuel surcharge waivers or reward points that can be redeemed for vouchers. Choose benefits that align with your lifestyle to maximise value.
6. Analyse the FD Lock-in Period
Your FD remains locked as collateral for the credit card. Breaking the FD before the credit card tenure ends can result in penalties or immediate card cancellation.
Select an FD tenure that aligns with your credit card usage plans. For instance, if you foresee needing funds in the short term, avoid long-term FDs or cards with strict lock-in conditions.
7. Confirm the Eligibility Criteria
Credit cards against FD typically require minimal documentation, making them easier to obtain. However, failing to meet basic criteria can lead to delays or rejections.
Ensure you have all the necessary documents, such as:
1. Proof of identity (Aadhaar, PAN, or passport)
2. Proof of address
3. FD receipt or confirmation
4. A valid bank account with the issuer
5. This preparation can streamline your application process
8. Understand the Consequences of Default
Missing payments on your credit card against FD could result in the bank using your FD to recover outstanding dues, leaving you with little to no savings.
Ensure timely repayment of dues to avoid such situations. Set up reminders or automatic payments if necessary. Use the card responsibly and avoid over-borrowing to maintain your financial health.
Why Consider a Credit Card Against FD?
● Improves Credit Score
Regular repayment builds your credit history, making it easier to qualify for unsecured credit cards in the future.
● Lower Risk
Since the card is secured against your FD, the risk for the issuer is minimal, making it easier to get approval.
● Beginner-friendly
Ideal for those who are new to credit or want to establish a credit profile without taking on unsecured debt.
Final Thoughts
Choosing a credit card against Fixed Deposit can be a strategic financial move if approached wisely. Assess your needs, review the card’s terms and conditions, and ensure it aligns with your financial goals. Remember, while this card can help you build a credit history, responsible usage and timely repayments are key to reaping its benefits.
If you’re ready to apply for a credit card, compare options across banks to find the one that best suits your requirements. Look for minimal fees, favourable terms, and benefits that complement your spending habits.