Credit cards have become a crucial part of modern financial management, offering convenience, rewards, and the ability to build credit. For many, especially those with low income, poor credit history, or irregular income sources, getting a traditional unsecured credit card can be challenging. This is where a credit card against a fixed deposit (FD) comes into play. In this article, we'll discuss the benefits of obtaining a credit card against an FD, explain how these cards work, and why they might be the best choice for many individuals. We'll also cover the application process and the minimal documentation required, making it clear why this option is increasingly popular.

What is a Credit Card Against FD?

A credit card against an FD is a type of secured credit card. Unlike unsecured credit cards that require a good credit score and regular income, secured credit cards are issued against a fixed deposit held with the issuing bank. The FD acts as collateral, providing security for the bank and making it easier for individuals to obtain a credit card. The credit limit is typically set at 80-90% of the FD amount, ensuring the cardholder has access to credit while still earning interest on their deposit.

How Do Credit Cards Work?

To understand why a credit card against an FD is beneficial, it’s important to grasp how credit cards work. A credit card allows you to borrow money up to a certain limit to purchase goods or services. You are required to pay back the borrowed amount, typically on a monthly basis. If you pay your balance in full each month, you can avoid interest charges. Credit cards also come with various perks like rewards, cashback, and travel benefits, making them a valuable financial tool.

The Major Difference Between Unsecured Credit Cards and Credit Cards Against FD

Unsecured credit cards are issued without any collateral, relying solely on the cardholder's credit score and income. These cards usually have higher fees and stricter eligibility criteria. On the other hand, a credit card against FD is secured by the fixed deposit, making it easier to obtain for individuals with low income or poor credit history. This type of card is ideal for those who might not qualify for an unsecured card but still want the benefits of having a credit card.

Why Create a Fixed Deposit to Get a Credit Card Against FD?

Easier Approval Process

One of the main reasons to opt for a credit card against an FD is the easier approval process. Since the card is secured by your fixed deposit, the bank has reduced risk and is more likely to approve your application, even if you have a low credit score or irregular income.

Building Credit History

Using a credit card against an FD responsibly can help you build or improve your credit history. Timely payments and responsible usage are reported to credit bureaus, helping you establish a positive credit record, which can eventually make you eligible for unsecured credit cards and loans.

Interest Earnings

Even though your FD is lien-marked, it continues to earn interest. This means you benefit from having access to a credit card while your savings grow. This dual advantage makes credit cards against FD an attractive option for many.

Benefits of Opening a Bank Account with FD

Credit Limit Provisions

The credit limit on a credit card against FD is generally set at 75-85% of the fixed deposit amount. This ensures that the cardholder has sufficient credit available while still maintaining a buffer in the FD.

Interest-Free Period

Most banks offer an interest-free period of 48 to 55 days on credit cards against FD. This allows cardholders to make purchases and repay the amount within this period without incurring any interest charges.

Rewards and Perks

Credit cards against FD often come with various rewards and benefits, such as cashback, reward points, and discounts on purchases. These perks make using the card more rewarding while managing your expenses efficiently.

Conclusion

Credit cards against FD offer a practical and accessible way for individuals with low income, poor credit history, or irregular income to enjoy the benefits of a credit card. By securing the card with a fixed deposit, banks can provide credit to a broader range of customers while ensuring their financial safety. This type of credit card is easy to obtain, helps build credit history, and continues to earn interest on the fixed deposit. Always ensure you read through the terms and conditions carefully and choose a bank with favourable reviews to maximise the benefits of your credit card against FD.