Credit cards are one of the most widely used forms of payment in banking and finance. A credit card is a form of payment card, and the basic idea of a credit card is to make payments for the purchase of goods or services or withdraw cash but on credit, hence the term "credit" in its phraseology. A credit card, unlike a debit card, allows users to form a balance of debt, which then has to be paid at a later time, mostly in monthly cycles of instalments. When a credit card holder obtains a credit card, they are allowed to have a certain amount of credit limit set by the issuing bank. The concept is to "borrow" money from the credit limit you are allowed for various expenses. This "borrowed' money is then paid off via a monthly billing system.

Characteristic features of a Credit card and its benefits:

1. A credit card is an easy and hassle-free payment tool.

2. It has ease of access and, depending on the issuing authority, can be used in multiple countries.

3. It comes with additional perks like discounts, promotional deals, lounge access, pre-approved loans, etc.

4. It is not a form of investment but a form of payment and cash withdrawal.

5. Credit Cards are a great way to build credit history and establish your credit portfolio.

6. Credit cards can be a real blessing in emergencies when you need immediate access to funds. They are a great option for borrowing for a limited time or for making necessary purchases with limited funds.

7. A Credit card is a suitable mode of payment for people looking for a flexible system of managing their funds. It is perfect for young people starting out to build their credit profile. It is also great for businesses that want to track their business expenses and for individuals who wish to manage small-scale purchases without applying for a proper loan.

Zet App Download

What is Credit Card against FD - Fixed Deposit?

Fixed deposits are a type of financial investment that has been popular for a long time. The fundamental concept of a fixed deposit is that an individual can deposit a fixed amount of money for a specified period, hence the term "fixed" in its terminology. Over a period of time, the amount gathers interest, which has been set at the time of deposit, and then at the end of the term period, a maturity amount is ready to be withdrawn by the depositor. It is one of the most popular forms of investment, particularly for its reliability, low-risk factor, and assured returns.

Characteristic features of a fixed deposit and their benefits-

1. They are a very low-risk type of investment. They provide a safety net and are comparatively safer from banking frauds and scams.

2. Depending on the bank and the scheme, the lock-in period for a fixed deposit can vary from several weeks to months to years.

3. This mode of investment is very conventional and is perfect for individuals who wish to seek very stable and low-risk investment options.

Read More:: Is a 750 Credit Score Good?

Is credit card against FD good? For a credit card issued against fixed deposits, the two concepts are brought together- that of a credit card and a fixed deposit. Normally, a credit card does not require a deposit because it works on the principle of debt and borrowing. However, sometimes, credit cards are issued against fixed deposits by pledging the fixed deposit as collateral. This hybrid method allows users the flexibility of having a credit card with the security of a fixed deposit. It is known as a secured credit card and minimizes the risk factors associated with an unsecured type of credit card. This is a very popular method of acquiring a credit card, and its benefits are obtained by many people who wish to explore the world of credit cards but have limited credit scores and borrowing reliability

How Does a Credit Card Issued Against a Fixed Deposit Function

1. Provides collateral: The main aim of a credit card issued against a fixed deposit is for the amount to function as collateral. In this case, the credit limit is set depending on the deposit value and ranges from 80% to 90% of the entire amount and your credit score does not affect your credit limit unlike other forms of credit cards.

2. Rates of interest: The interest rates for credit cards obtained against a fixed deposit are generally a bit lower than those of other credit cards. This is because the fixed deposit amount provides a layer of security that reduces the risk for lenders.

3. Repayment: The cardholder can utilize their credit limit and is expected to make payments like regular cards. The only difference is that failure to pay and continuous defaulting will automatically result in the bank covering the outstanding amount from the fixed deposit.

4. Duration and renewal: The validity of the credit card is often time-lined with the duration of the fixed deposit. Similarly, upon the completion of the fixed deposit's term period, the holder may have to renew or re-evaluate their terms and credit card usage with the bank.

Read More:: Credit Score Vs CIBIL Score

What are the advantages of get a credit card against an FD?

1. Ensures a lower rate of interest: The fact that the card is secured by a fixed deposit means it is a low-risk factor, which in turn results in lower rates of interest compared to regular cards. This is a great option for individuals who wish to gradually increase their credit scores but have less creditworthiness to begin with.

2. Easy Approval: This is a perfect option for people with lower credit scores who have difficulty rebuilding their credit profile. Individuals with such portfolios will have an easier time obtaining a credit card through a fixed deposit. This is a way of establishing trust and building a credit profile among lenders. The process of securing a credit card requires minimal to no documentation, and everything is regulated through your fixed deposit account which eliminates a lot of details involved in the approval process.

3. Flexibility in Financial Issues: This middle-ground method allows individuals some financial flexibility, such as immediate access to funds during emergencies or to make sudden purchases which they would otherwise not have any access to.

4. Interest on Fixed Deposit: irrespective of the cardholder's credit utilization, the account holder will continue to collect the interest rate on the fixed deposit as well. So, apart from being a mode of payment and instant fund access, it also serves as a form of investment. Ensures Safety and reliability for lenders- Not just for borrowers, but this method helps lenders eliminate many risky borrower and provides them with a safety net to avoid losses.

Read More:: What Happens If You Default on Your Credit Card

Limitations of Credit Cards obtained against a Fixed Deposit

A secured credit card acquired through a fixed deposit has many advantages but also has certain limitations. Read below to be abreast of the limitations so that you can always make an informed choice -

1. It comes with a specified lock-in period, which may limit your chances of liquidating your amount when required. Pre-term liquidating will result in penalties, fines and will have an impact on the overall maturity amount.

2. It also allows for a specific credit limit that has no relation to your creditworthiness but is calculated in accordance with your fixed deposit amount. This can mean either a higher credit limit or a lower credit limit that you will not have a say on.

3. The risk of losing your fixed deposit amount always looms large with this type of credit card account because failure to repay or default will result in the lender seizing your fixed deposit amount.

Read More:: RBI Guidelines for Credit Cards

Which bank offers credit card against fixed deposit?

These are some of the banks in India that offer a credit card against a fixed deposit-

1: AXIS Bank

2: IDFC FIRST Bank

3: HDFC Bank

4: SBI

5: HDFC Bank

6: Kotak Mahindra bank

7: RBL Bank

8: IndusInd bank

9: Bank of Baroda

10: Union Bank of India

Top 5 Credit Cards Against FD

Here is a list of the top five credit cards that can be acquired against a fixed deposit-

SBM Credit Card - The SBM Bank (India) along with Paisabazaar being the co-branded partner has now been witnessed introducing credit cards against Fixed Deposit (FD) known as the Step Up Credit Card. This credit card against FD is designed to the requirements of an average salaried individual. The minimum FD amount is up to RS. 2,000 which makes it highly affordable too. The Step Up Credit Card is known to be 100% pre-approved which also takes minutes to apply.

IDFC FIRST Bank Credit Card- This is a secured credit card which is given against a fixed deposit in IDFC FIRST Bank. It comes with minimal to no annual charges and has a reward based system on all kinds of transactions. It is generally issued against a fixed deposit of INR 25,000 and more. The credit limit on this credit card is typically set at 85% percent of the total fixed deposit amount

ICICI Bank Instant Platinum Credit Card- Another good option is the ICICI Bank Instant platinum Credit card which can be availed against a fixed deposit of 20000 or more. It is very easy to use and has a minimal annual fee of 500. The credit usage limit is set at 85% of the fixed deposit amount which depends on the credit card holder.

Axis Bank Insta easy Credit Card- Another secured card that is perfect for individuals with a lower credit history and it can be availed on a collateral of a fixed deposit. It has a quick approval process and comes with cashbacks, discounts and rewards with selected merchants and brands. It can be applied online and has an instant approval procedure. The annual charge for this card is Rs. 500.

SBI Card Unsecured Credit Card – This is a secured card which is tailor made for users with low income or low credit score. This card is generally given against a fixed deposit in SBI with a minimum amount of 25,000 and more depending in the individual. The annual charge is 499 and it comes with basic perks like cashbacks, rewards and selected discounts.

HDFC EasyEMI Credit Card- This is also another secured credit card that allows individuals with low to no credit score of experience a credit card. It has a quick approval process and offers some good rewards and discounts on transactions. It can be easily acquired through an online process. The annual fee is Rs. 500 and the credit limit is 75- 80% of the FD amount. This card also has a flexible repayment system making it easier to manage credit for users.

Things to keep in mind to help you get the maximum use out of your Credit Card

Here are some tips and tricks to ensure you get the maximum benefit from your card issued against a fixed deposit. Following these steps will ensure you have a well-managed credit card, which will translate into a steady credit score.

1. Always read the fine print and know your limits, interest rates, and any fees that may be associated with maintenance, transactions, withdrawals, etc. A well-informed consumer makes the best choices.

2. Do not overshoot your limit or overspend your card. Limit your purchases and expenses to the basic requirements, which will allow you to regulate your credit utilization ratio and help you maintain a good credit score in the long run. You should definitely not use this card for impulse purchases and unnecessary spending.

3. Always pay off the debt on time through a scheduled monthly cycle. Avoid being late or defaulting on your payments, as this can impact your deposit amount and credit score. Late payments can incur additional rates and late fees, so always make sure to pay on time. You can set reminders or enable automatic deductions to keep track of your payment cycle.

4. Make ample use of the rewards and benefits, whether for shopping, making payments, paying bills, etc. Keep track of your accumulated rewards and use them to your advantage before they expire.

5. Try to use the card to its full potential by grabbing all additional features like promotional deals and discounts, travel benefits, purchase protection, etc. Lenders and banks have many programs for their cardholders, so make sure to check that out and use it to your benefit.

6. Always track your fixed deposit account and stay informed if it is nearing its end or needs to be evaluated or reinvested.

7. You should periodically assess your credit requirements, check if the card still meets all your requirements, see if it needs to be reassessed, and negotiate with the bank if necessary.

Read More:: What is the best CIBIL Score

Conclusion

A credit card against a fixed deposit is a convenient and practical way for people who may have difficulty acquiring a credit card through normal means. A secured credit card obtained against a fixed deposit requires no proof of income, so it is a feasible option for many individuals who do not have a steady income or have a low credit score. Often, people withdraw from the idea of holding a credit card due to its association with high maintenance fees, additional charges, and a higher rate of interest on the credit. However, having a credit card against a fixed deposit saves you from all these. It provides you with the convenience of a credit card and the security of a Fixed deposit. It allows a certain financial independence and is especially beneficial for people with lower credit ratings and for individuals who are starting to build a credit profile from scratch with limited resources and no fixed source of income. It is a perfect start to having and managing a credit account and establishing your identity in the world of personal finance.

FAQs

Which is better- a fixed deposit or basic credit card?

A fixed deposit and a credit card are fundamentally different—the former is a mode of investment, and the latter is a mode of making payments and purchases. Both can be used according to the individual's requirements.

Can a credit card be issued to a fixed deposit account?

A credit card generally doesn't require cash deposits, but in some cases, banks may use the fixed deposit amount to approve the credit limit for a secured credit card.

Can a person with a low credit score obtain a credit card with a fixed deposit?

Yes, people with low credit scores can obtain a credit card with a fixed deposit. This is, in fact, a great way for such individuals to build their credit profile.

Is credit card against FD good?

One benefit of using a credit card against a fixed deposit is that the credit limit is dictated by the total amount of your deposit, not by the bank.

Is the credit card still valid to use after the fixed deposit is mature?

No, the credit card's validity generally expires with the maturity of the fixed deposit when the account is closed.