Fixed deposits are investment avenues that allow you to save for a fixed tenure and get a predetermined interest rate. While you can invest your savings in a fixed deposit scheme, what would you do if you need funds in an emergency? Most people think of taking loans. However, sometimes availing of a loan can get tricky due to multiple reasons like delay in process, documentation, low credit score, etc. Some people break their FD accounts for immediate cash flow during emergencies. It leads them to pay a penalty on the promised FD returns. Instead of losing money in paying penalties, you can take a loan against your FDs instead. Taking a loan against your FDs can give you funds against your existing deposits to meet your financial needs quickly.
Let’s understand what a loan against FD means and its different aspects.
A loan against FD is a credit facility banks offer as a loan against your existing fixed deposit account. Rather than withdrawing your fixed deposit prematurely and paying penalty fees, you can avail of this secured loan at an affordable interest rate. While some banks offer upto 90% of the FD amount as a loan, the amount varies from bank to bank.
| Bank Name | Interest Rate | Loan amount |
|---|---|---|
| Axis Bank | 2% above term deposit rate | Rs.25,000 onwards |
| State Bank of India | 1% above the relative FD rate | Rs.25,000 to Rs.5 crore |
| HDFC Bank | 2% above the FD rate | Up to 90% of your fixed deposit |
| Federal Bank | 2% above the FD rate | Up to 90% of the deposit amount |
| Karur Vysya Bank | 5% to 7% | Up to 90% of the deposit amount |
| Deutsche Bank | 2% above the FD rate | Rs.25,000 onwards |
Note: Banks do not offer loans against FD benefits to the investors of 5-year tax-saving FDs
You can avail of a loan against FD in the following ways:
You can visit the nearest branch of your bank, where you maintain a fixed deposit account. You can complete the loan application form and submit it with your fixed deposit receipt. As the bank already has your KYC formalities updated from when you opened your FD, the documentation required for a loan against your FD will be minimal.
Once the branch verifies your application and documents, they will sanction the loan.
You can also get the loan through the bank’s website. Log into your net banking account, choose the deposit scheme against which you want the loan and apply. Fill out an online application form and submit your documents. The bank will issue the loan once your application and documents are verified.
Many banks have launched mobile applications that help you track your accounts and investments. You can download your bank’s mobile app and apply for a loan from the app itself. Just fill out a simple application form and upload your documents. The bank would verify your details and sanction the loan on a fixed deposit.
Usually, the eligibility parameters depend on the bank with which you apply for the loan. However, some of the common eligibility parameters are as follows:
| Eligibility parameter | Requirement |
|---|---|
| Age | You should be an adult – 18 years or above – to apply for the loan. Usually, lenders allow loans at a minimum age of 21, but the minimum age criterion might vary. |
| Fixed Deposit | You must hold a FD with the bank you are applying for the secured loan.There is also the requirement of a minimum deposit amount against which you can get the loan. This minimum amount differs in each bank. The loan is available both against individual FDs and joint FDs. |
| Type of borrower | Loans are available to official residents of India, Hindu Undivided Families (HUFs), trusts, associations, societies, sole proprietorship businesses, companies and partnership firms. |
| Tax-saving FDs | Loans are not available against 5-year tax-saving fixed deposit accounts. |
If you face an emergency, like a medical crisis, a loss of job, or any other financial obligation, you can avail of a loan against FD and get the funds to fulfil your needs. The loan has affordable interest rates and allows the overdraft facility wherein you pay interest only on the borrowed amount.
However, getting a loan against a fixed deposit depends on your fixed deposit. So, if your deposit is low, you might not get funds as needed. Other than this, the loan offers easy financing for your needs.
What is the interest rate charged for a loan against FD?
The interest rate varies across banks; it is usually 1% to 2.5% above the interest rate offered on the fixed deposit account.
Can senior citizens apply for a loan against FD?
Yes, senior citizens can apply for a loan against FD if they have a deposit account with the bank.
What are the charges to be paid against the loan against the fixed deposit?
Usually, no additional charge is payable for the loan against FDs. Most banks do not even charge a processing fee.
What happens if I cannot pay the EMIs towards my loan against FD?
If you cannot pay the EMIs, the bank will realise the outstanding loan amount by liquidating your fixed deposit.
Can I close my FD before my loan tenure ends?
No, you cannot. The loan is granted against the security of the fixed deposit account, which gives the lender the right to utilise your fixed deposit investment if you default on the loan. As such, till the loan is fully repaid, you cannot close your FD. However, if you have prepaid the loan before the tenure is complete, you can close the fixed deposit account.
The minimum eligible amount for SBI's overdraft against FD is Rs.25,000.
Unfortunately, no. You must be 18 years old and hold a valid fixed deposit account to access this loan.
Absolutely! Banks like HDFC and SBI offer loans against FCNR (Foreign Currency Non-Resident) deposits. Additionally, loans against NRE (Non-Resident External) and NRO (Non-Resident Ordinary) deposits are also available.
The loan against FD is considered secure because the FD here acts as collateral, and the loan amount is a percentage of the FD’s value.