How Does a Credit Card Against FD Work?
If you have started a fixed deposit at your bank then you are on the right path to financial discipline. But did you know that you can use your FD as a way to make bigger purchases? This is possible when your bank gives you a credit card. This credit card can be issued against your existing FD with the bank. But let’s explore in detail how these credit cards work.
What is a Credit Card Against FD?
A credit card against fixed deposit is a special credit card that you can use. Your bank can give you this type of credit card against your FD. If you have an existing FD of some good amount, then you can take advantage of this opportunity. Your bank uses your FD to provide security if you cannot pay your credit card bills. Essentially, your FD is used as collateral to issue this free credit card.
How Does it Work?
Your credit card against fixed deposit works slightly differently than a regular credit card. Here’s the entire process so you know what you’re getting into beforehand.
- Firstly, you will have to start a fixed deposit at the bank.
- Secondly, you need to fill out the application for a credit card linked to your FD.
- Then comes the process of lien marking, where the bank marks your FD as collateral against this credit card.
- Once issued, you can use this free credit card just like any other credit card and purchase anything within the credit limit.
- You can also make withdrawals using this credit card, but that is also within the given credit limit.
- If you succeed in paying your credit card bills on time, then your FD will remain intact.
- However, if you are unable to make timely payments and build up a large credit balance, the bank liquidates your FD to recover this payment.
What Are the Benefits?
When you apply for this free credit card, you will enjoy many benefits.
- Anyone can get it
This type of credit card is available to anyone with an existing FD. You can get it regardless of whether you are a salaried professional or without any income proof.
- Building a credit history
By regularly using this credit card against a fixed deposit, you will start to maintain a good credit history. This will improve your credit score. As a result of this, you will be more likely to get approved for housing and auto loans in the future.
- More rewards and cashback offers
Whether it is reward points or cashback offers, these free credit cards have it all. Since your existing FD ensures this card with the bank, they will be more obliged to give you offers. These offers will encourage you to spend more on this credit card. So, if you have financial discipline, this type of credit card is quite ideal.
- Non-stop interest from FDs
Even when the bank has taken your FD as collateral, you can continue earning interest. So, getting a credit card against fixed deposit can do two things for you. Firstly, it can give you a good credit score and better purchasing power. Secondly, it can help you continue earning interest from your FD.
How Do These Benefits Work?
When using this free credit card, you should know a few tricks. By knowing these, you can make the above-mentioned benefits work for you.
- Tip# 1: Keep a sufficient amount in your FD because your credit limit depends on it. Since most banks offer 75-90% of the FD amount as a credit limit, the bigger your FD, the bigger your credit limit.
- Tip# 2: Always choose cards with no joining and annual fees. Some banks can even give you a lifetime-free credit card. This is possible when your FD amount is quite substantial, inciting more confidence in you by the bank.
- Tip# 3: You should also preferably choose only credit cards with a long interest-free period. Most banks offer 55-day interest-free periods to pay off your credit card bills.
Conclusion
A credit card against fixed deposit is a valuable financial tool that combines credit access with security. It not only enhances purchasing power but also builds credit history while allowing continued FD interest earnings. By choosing the right card and using it responsibly, individuals can enjoy rewards, flexibility, and a pathway to better financial opportunities.
