Credit Card Against FD: How it Works? - Kotak Bank
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20 DECEMBER, 2021

A secured credit card is secured by a fixed deposit and is popularly known as an FD by cardholders. Obtaining a credit card against FD is gaining limelight as people are curious about its perks. Many banks have started providing this feature with their rising demand and popularity. The linked FD must be lien marked, implying that it acts as collateral for the credit card. The credit limit is typically set at 80-90 per cent of the FD amount for precision. It is worth noting that the lien-marked FD continues to earn desirable interest.

The Major Difference Between an Unsecured Credit Card and a Credit Card Against FD

Unsecured credit cards are those that are issued without the involvement of collateral. They have high fees and are only available to those who meet the eligibility criteria laid down by the issuing bank. A good credit score and a consistent source of income are the essentials for obtaining an unsecured credit card.

Contrastingly, a credit card against FD is a secured credit card, i.e., it is a lien marked against a fixed deposit for utmost efficiency. Then, this FD is held by the bank that issues this type of credit card. Therefore, these cards are simple to obtain. It is therefore advisable for those with low income to avail a credit card against their FD account.

This is a suitable choice for the people who:

  • Do not have a regular source of income in any form
  • Have a poor credit history,

Work as freelancers or are homemakers, etc.,

  • Have a new job with a low income

The Functioning Mechanism

This card type is secured by a lien marked against a fixed deposit which is a distinct mechanism. Low/no credit score or an absence of income documentation do not limit one from meeting the eligibility criteria to get this card. In the situation of default, the bank reserves the right to settle missed or late payments. It may do so by redeeming the lien marked fixed deposit, which is a suitable option for the cardholders. However, before taking such a step, the bank notifies the cardholder via all available communication channels.

One of the striking characteristics is that it provides an affordable FD amount to its customers:

The minimum fixed deposit amount that one must add usually ranges from Rs.10,000 to Rs.20,000. Therefore, it is affordable as most people can secure it with convenience and ease.

Credit limit provisions:

The amount in the fixed deposit essentially determines the credit limit on this type of credit card. Banks generally offer a total credit limit on the card of 75 per cent to 85 per cent of the deposit amount.

  • Meagre documentation requirements: This might be the best credit card you can get as very few documents are required to be submitted.
  • Less Tenure Duration: The minimum tenure duration of the fixed deposit given as security to the bank should be six months.
  • Provision of interest-free duration: Usually, banks offer 48 days to 55 days on such cards.
  • Rewards that can be availed: These cards offer multiple rewards, including cashback, reward points, etc., to the cardholders.
  • Provision of interest on fixed deposit: Cardholders benefit from gaining interest on the fixed deposit amount.
  • Eligibility Criteria: The eligibility criteria for this card can vary from one type to another.

The Application Process

Non-FD accountholders:You must have a fixed deposit account with the respective bank for holding this card. Some cards are provided as a benefit of having an FD with the bank. Once your FD account with the bank becomes active, it becomes easier to apply for the card online.

FD account holders:If you already have an FD account with the desired bank, you can apply online by visiting the bank’s website.

Documents Required

For those who have a fixed deposit account with the bank, providing any additional documents for identification is not needed. Furthermore, besides identification proof, proof for the residence is also not required for fixed deposit account holders with the bank.

The bank would consider the same set of proofs submitted while opening the fixed deposit account. They may, however, check the validity of the proofs, particularly the authenticity of the current place of residence. In addition, a fresh set of proofs may be collected for those who wish to open a new fixed deposit account with a bank.

The application process and perks of getting a credit card against FD are desirable. In addition, its efficiency has made it a credit card that is in demand which has some impressive features.

Before you avail any offer from a bank make sure to go through the reviews associated with the bank and read through every document carefully.

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Disclaimer: This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Tax laws are subject to amendment from time to time. The above information is for general understanding and reference. This is not legal advice or tax advice, and users are advised to consult their tax advisors before making any decision or taking any action.