January 24, 2026 · 5 mins read
Santosh Kumar
If a student fails to meet the deadline for a payment on their FD-backed credit card, the fixed deposit remains unaffected until such time as their payment becomes overdue. If this situation continues and the student continues not to pay, there will be ongoing repercussions relating to this failure to comply. An FD-backed credit card functions like any other standard credit card used daily; however, the FD supports the credit card and provides security to the bank against possible default. In situations where there has been a default, the bank will treat the default in the same manner as any other standard credit card; therefore, the bank will assess a late payment fee and assess interest on the unpaid balance at its established APY.
The most immediate impact is financial. Late fees are added, and interest continues to accrue daily. This could result in a very small amount becoming a considerably larger amount of unpaid debt. Students can experience great financial stress and difficulty managing this type of situation if they do not take prompt action to avoid future debt collection. The student’s missed payment will also be reported to the credit bureaus, and thus, the missed payment will be reflected in the student's credit report. Many students utilize FD backed cards as a means of establishing their initial credit history; as such, their missed payment may negatively affect future borrowing ability, even though it was only one missed payment.
The first missed payment will not be acted on by the bank against the FD. Banks will generally allow a cardholder to bring the account current and will issue reminders, enjoy, and/or provide follow-up communication to the customer before acting on the account. If the student fails to make the payment again for an extended period, the bank can use the FD as collateral and/or partially redeem the FD. The FD represents the collateral that allowed the bank to approve the card to be issued.
If the bank uses the FD to recover outstanding debt, it will cause the FD to be prematurely closed or partially liquidated and will result in a loss of interest on the FD to the student, as the premature breakup of FDs incurs penalties. Therefore, the student effectively loses both the original principal amount on the FD and any accrued interest.
Also Read: Can We Invest Monthly In FD?
This is usually a last resort for banks, as they will often try to resolve the account through other means. However, once there are repeated instances of default or an individual is a long-time non-payer without making payments to the issuer, the bank will take action against the FD to recover any amounts owed. Once this happens to the FD, the account may be suspended or frozen, and the cardholder will lose their ability to access credit.
Responsible use of credit will also help develop the ability to track one's billing cycle and to develop good habits (setting reminders) that will aid in developing long-term prudence with respect to credit. The use of credit cards that are backed by the government provides students with the means to establish an early record of credit as well as a solid foundation from which they can build a successful credit history in their future lives.
Also Read: How to raise your credit score by 200 points
To avoid the negative consequences associated with missing a payment, it is important for students to stay informed about their credit card billing cycle and to establish a regular schedule for payment, if possible, on the full amount owed to the card issuer each month. In many instances, establishing habits early in a person's life will aid in making future financial decisions much less difficult.
Companies such as ZETAPP provide information on the history of credit, the types of financing available to consumers, as well as how an individual can build a positive credit profile.
The no-thank-you limit of my FD is not automatically enforced upon missing a payment. The Bank provides the customer ample notification and time to pay before exercising this option.
Will my FD automatically be terminated if I miss one payment? No, this generally applies only after multiple or long-term deficiencies.
No, this generally applies only after multiple or long-term deficiencies.
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