Regular Credit Card Vs Credit Cards Against Fixed Deposit

21 JANUARY, 2025

India has seen a tremendous upsurge in the credit card market. With several advancements and technological improvements, the area has numerous developments.

Smooth onboarding processes, unique card products, personalized offers and rewards, and improved mobile apps are just a few of these improvements' new features.

The post-pandemic credit card market has seen a significant transformation and is continuously changing due to the emergence of e-commerce and the acceptance of contactless payments.

Nowadays, just like you can take out a loan against your fixed deposit, you can also get a credit card against it. People who have difficulty qualifying for a credit card due to their low income or credit score can avail of an FD credit card.

So, how does a regular credit card differ from a credit card against FD? In this blog post, we will examine the differences between a standard and a fixed-deposit credit card.

What is a regular credit card?

A regular credit card is a payment instrument that allows you to purchase and access money. Credit cards issued by Banks and other financial organizations serve as a line of credit.

Credit cards provide users with convenience and security, as they can be monitored and tracked in case of fraud or theft.

Benefits of a regular credit card

A credit card offers numerous benefits to the cardholder; some of them are:

The main advantage of the credit card is that it allows a free credit period of up to 48 days.
It will enable making payments quickly and conveniently, both online and in-store.
Credit cards also provide a secure way to access credit and help build a financial history and credit score.
Numerous credit cards offer rewards and exclusive deals like cashback and discounts.
Also, many credit cards offer additional protection against fraudulent purchases.

Benefits of a secured credit card

A credit card backed by fixed deposits also offers significant advantages, including:

A person with a low income and credit score can also apply for an FD credit card since the FD itself backs it.
Secured credit cards may be an excellent tool for those with a low credit bureau footprint or no credit to build or improve their creditworthiness, boosting their eligibility for loans shortly.
Secure credit cards provide several types of rewards and discounts when using a card to make a transaction.

What distinguishes a credit card against FD from a regular credit card?

Regular credit cards and credit cards backed by fixed deposits function similarly, but they have some differences. Let us see a few of them:

1. Collateral

With a regular credit card, there is no collateral requirement. However, credit cards backed by FDs keep fixed deposits as collateral.

So, if cardholders do not pay their due amount or interest, the card provider can seize their FDs to recover the amount.

2. Income requirements

For a secured credit card, the fixed deposit serves as the security, so additional income documentation is not required.

However, a person must provide proof of income with a regular credit card.

3. Credit score

A low credit score can get a fixed deposit credit card. In contrast, a person might only get a regular credit card with a high credit score. The criteria for credit scores will vary according to card providers.

4. Documents required

Applicants do not need to provide additional documents to prove their identification or place of residence if they already have a fixed deposit with the Bank. They may apply for a secured credit card right away using the FD.

Conversely, with a regular credit card, applicants have to provide the necessary documents.

Withdrawal

Users of secured credit cards cannot terminate their fixed deposit accounts before the card is closed or expires. Nevertheless, this is different from a regular credit card.

Credit card limit

Banks use the fixed deposit value to decide the credit limits for secured credit cards. The secured credit card’s credit limit normally ranges between 80% and 90% of the fixed deposit amount.

Conversely, in a regular credit card, card providers decide the credit limit based on the applicant’s income and credit score.

Cardholders can also increase their credit card limit to get the most out of their credit card.

Conclusion

Secured credit cards provide the same benefits as regular credit cards on purchases made, such as reward points, coupons, discounts, etc. Additionally, they offer an interest-free credit period and impose financial costs for late payments of credit card bills.

For those with a poor credit rating, little income, or not eligible for a regular credit card, a credit card against a fixed deposit works well.

Be cautious about touching the FD funds once they have matured. Nevertheless, getting a regular credit card or a credit card backed by FD serves a similar purpose. Of course, one must be a disciplined spender to use them wisely.