An FD-backed credit card is a type of secured credit card where your fixed deposit (FD) with a bank acts as collateral. Unlike regular unsecured credit cards, these cards allow easier approval, higher credit limits, and lower interest rates for borrowers, making them an ideal option for beginners or those looking to rebuild credit.
This blog explains how FD-backed credit cards work and the advantages they offer.
How FD-Backed Credit Cards Work
Deposit Requirement
You need to place a fixed deposit with the bank, usually ranging from ₹25,000 to several lakhs.
The FD amount generally determines the credit limit, often 80–100% of the deposit.
Card Issuance
Once the FD is linked, the bank issues a credit card.
The FD acts as security, so approval is easier even if your credit history is limited.
Interest on FD
The FD continues to earn interest at the fixed deposit rate, separate from the credit card usage.
Unlike a personal loan, the FD remains intact unless you default.
Repayment and Usage
Use the credit card like a regular card for shopping, EMIs, and online payments.
Timely payments help build or improve credit history, while late payments may lead to standard penalties.
Benefits of an FD-Backed Credit Card
Easier Approval
Low-risk for banks, making approval simple for first-time credit users or those with low credit scores.
Higher Credit Limit
Your credit limit is often linked to the FD, enabling higher spending power than unsecured cards for beginners.
Build or Rebuild Credit Score
Regular, timely payments are reported to credit bureaus, helping you establish or improve credit history.
Lower Interest Rates
FD-backed cards often come with lower interest rates than unsecured cards since the FD serves as collateral.
FD Safety
Your FD continues to earn interest, and you retain full ownership unless you default on payments.
Secured Financial Planning
Helps users manage credit responsibly without risking large sums of personal savings.
Who Should Consider an FD-Backed Credit Card?
First-time credit card users seeking easier approval.
Individuals with low or no credit history.
Those aiming to rebuild their credit score.
People who want higher credit limits without unsecured borrowing.
FAQs
Q1: Can I use an FD-backed credit card like a regular credit card?
A1: Yes, it works like a normal credit card for purchases, online payments, and EMIs.
Q2: Do I earn interest on the FD?
A2: Yes, your fixed deposit continues to earn interest as per the bank’s FD rate.
Q3: What happens if I default on payments?
A3: The bank may recover dues from the linked FD, and your credit score will be negatively impacted.
Q4: Is there a minimum FD amount required?
A4: Typically, banks require a minimum FD of ₹25,000, but this varies depending on the bank and card type.
Conclusion
An FD-backed credit card is a smart option for anyone seeking credit access with lower risk, higher approval chances, and the ability to build a strong credit history. By leveraging your fixed deposit as collateral, you gain financial flexibility while keeping your savings secure.
Published on : 26th September
Published by : SMITA
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