Is It Good to Take a Credit Card Against FD?

In the ever-evolving financial landscape, credit cards have become indispensable tools for managing expenses and building credit scores. However, obtaining a credit card can sometimes be challenging, especially if you have a low credit score or limited credit history. One potential solution that is gaining popularity is securing a credit card against an FD (Fixed Deposit). But is it a good option for you? Let’s explore the benefits and drawbacks of taking a credit card against FD. 

Understanding Credit Cards Against FD 

A credit card against FD is a type of secured credit card where your fixed deposit acts as collateral. Essentially, you deposit a certain amount into a fixed deposit account, and based on this deposit, the bank issues you a credit card. This method ensures the bank's security because if you default on your credit card payments, the bank can recover the outstanding amount from your fixed deposit. 

Benefits of Credit Card Against FD 

1. Easy Approval Process: One of the most significant advantages of applying for a credit card on fixed deposit is the ease of approval. Since the bank holds your fixed deposit as collateral, the risk is minimized, making it easier for individuals with low credit scores or no credit history to get approved. 

1. Build or Improve Your Credit Score: Using a credit card against FD responsibly can help you build or improve your credit score. Regular and timely payments on your credit card can positively impact your credit history, making you eligible for better credit options in the future. 

1. Lower Interest Rates: Credit cards against FD generally come with lower interest rates compared to unsecured credit cards. The fixed deposit acts as a security, reducing the risk for the bank and consequently lowering the interest rates for you. 

1. Rewards and Benefits: Just like regular credit cards, credit cards on fixed deposit often come with various rewards and benefits such as cashback, reward points, and discounts. This makes them an attractive option for individuals looking to maximize their savings and benefits. 

1. Credit Limit Linked to FD Amount: The credit limit on a credit card against FD is usually a percentage of the fixed deposit amount. This means that the higher your fixed deposit, the higher your credit limit. This flexibility allows you to choose a limit that suits your financial needs. 

Drawbacks of Credit Card Against FD 

1. Fixed Deposit Requirement: To get a credit card against FD, you need to have a fixed deposit with the bank. This requirement might be a drawback for those who do not have sufficient funds to lock into a fixed deposit account. 

1. Limited Usage of Funds: Since your fixed deposit is used as collateral, you cannot access these funds while they are securing your credit card. This could limit your liquidity and ability to use your savings in emergencies. 

1. Potential Fees: Some banks might charge fees for issuing and maintaining a credit card on fixed deposit. It is essential to understand these fees and compare them with the benefits you receive to ensure that it is a cost-effective option. 

How to Apply for a Credit Card Against FD 

Applying for a credit card against FD is a straightforward process. Here are the general steps: 

1. Choose the Bank: Select a bank that offers credit cards against fixed deposits. Research and compare the terms and conditions, interest rates, and benefits offered by different banks. 

1. Open a Fixed Deposit: If you do not already have a fixed deposit, you will need to open one with the chosen bank. The amount of the fixed deposit will determine your credit limit. 

1. Credit Card Application: Fill out the credit card application form, providing the necessary documentation such as identity proof, address proof, and income proof if required. Since the card is secured by your fixed deposit, the approval process is usually quicker. 

1. Receive Your Credit Card: Once your application is approved, you will receive your credit card. Activate it as per the instructions provided by the bank and start using it responsibly to build or improve your credit score. 

Is It a Good Option for You? 

Whether a credit card against FD is a good option for you depends on your financial situation and goals. If you have a low credit score or limited credit history, securing a credit card on fixed deposit can be an excellent way to build your credit profile. It also offers the dual benefits of earning interest on your fixed deposit while enjoying the convenience and rewards of a credit card. 

However, it is crucial to consider the fixed deposit requirement and ensure that you do not need immediate access to these funds. Additionally, compare the interest rates and fees associated with the credit card to ensure it is a cost-effective choice. 

In conclusion, a credit card against FD can be a beneficial financial tool for many individuals, offering easy approval, lower interest rates, and the opportunity to build or improve your credit score. As with any financial decision, it is essential to weigh the pros and cons and choose the option that best aligns with your financial needs and goals.