Credit Card Against FD: How it Works? - Kotak Bank

Credit Card Against FD: How it Works? - Kotak Bank

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21 JANUARY, 2025

A fixed deposit secures a secured Credit Card, popularly known as an FD-backed credit card among cardholders. Obtaining a credit card against an FD is gaining the limelight as people are curious about its perks. Many banks have started providing this feature with their rising demand and popularity. The linked FD must be lien marked, implying that it acts as collateral for the Credit Card. The credit limit is typically set at 80- per cent of the FD amount for precision. It is worth noting that the lien-marked FD continues to earn desirable interest.

The Major Difference between an Unsecured Credit Card and a Credit Card Against FD

Unsecured credit cards are those that are issued without any collateral. They are only available to those who meet the eligibility criteria laid down by the issuing bank. A good credit score and a consistent source of income are the essentials for obtaining an unsecured credit card.

Conversely, a Credit Card against FD is a secured Credit Card, issued against an FD which is lien marked. Therefore, these cards are simple to obtain. Those with low incomes should use a credit card against their FD account.

This is a suitable choice for the people who:

Require the best Credit Cardwith the limit they wish
Do not have a regular source of income in any form
Have no or limited credit bureau footprint
Work as freelancers or are homemakers, etc.
Have a new job

The Functioning Mechanism

This card type is secured by a lien marked against a fixed deposit, a distinct mechanism. A low/no credit score or an absence of income documentation do not limit one from meeting the eligibility criteria to get this card. In default, the bank reserves the right to settle missed or late payments. It may do so by redeeming the fixed deposit which was lien marked at the time of credit card issuance.

One of the striking characteristics is that it provides an affordable FD amount to its customers:

The minimum fixed deposit amount that one must add usually ranges from Rs.5000 to Rs.20000. Therefore, it is affordable as most people can secure it with convenience and ease.

Credit limit provisions

The amount in the fixed deposit essentially determines the credit limit on this type of Credit Card. Banks generally offer a credit limit of 80 per cent to 90 per cent of the deposit amount on the card.

Meagre documentation requirements: This might be the best Credit Card you can get, as very few documents are required to be submitted.
Less Tenure Duration: The minimum tenure duration of the fixed deposit given as security to the bank should be six months.
Provision of interest-free duration: Banks usually offer 48 days to 55 days on such cards.
Rewards that can be availed: These cards offer multiple rewards, including cashback, reward points, etc., to the cardholders.
Provision of interest on fixed deposit: Cardholders benefit from gaining interest on the fixed deposit amount.
Eligibility Criteria: The eligibility criteria for this card can vary from one type to another.

The Application Process

Non-FD accountholders: To hold this card, you must open a new fixed deposit account with the respective bank. Some cards are provided as a benefit of having an FD with the Bank.
FD account holders: If you already have an FD account with the desired Bank, you can apply online by visiting the bank’s website.

Documents Required

For those with a fixed deposit account with the Bank, providing any additional documents for identification is unnecessary. Furthermore, besides identification proof, proof of residence is not required for bank account holders with fixed deposits.

The Bank will consider the proofs submitted when opening the fixed deposit account. However, they may check the validity of the proofs, particularly the authenticity of the current place of residence. In addition, a fresh set of proofs may be collected for those who wish to open a new fixed deposit account with a bank.

The application process and perks of getting a credit card against FD are desirable. In addition, its efficiency has made it a highly demanded-credit card with some impressive features.

Before accepting any offer from a Bank, carefully read the reviews associated with the Bank and every document.

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Disclaimer: This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Tax laws are subject to amendment from time to time. The above information is for general understanding and reference. This is not legal advice or tax advice, and users are advised to consult their tax advisors before making any decision or taking any action.