Fixed Deposits (FDs) are a popular investment option in India owing to their safety, guaranteed returns and fixed
interest rates. However, many investors are unaware of the potential to use their FDs to meet urgent financial
needs. Using FD as collateral, you can unlock significant liquidity without breaking your deposit. Let's discover
the concept of FD collateral, its benefits, and how it can be a smart financial move.
What is FD as collateral?
Using Fixed Deposits as collateral is a type of secured loan where the FD guarantees the borrowed amount. If the
borrower defaults, the bank can liquidate the FD to recover the loan amount. This benefits both the lender and the
borrower as the bank has a low-risk loan, and the borrower retains the interest-earning FD.
For example, Axis Bank's Loan Against Fixed Deposit allows you to avail of a loan up to 85% of your FD amount. The
loan process is quick, with minimal documentation, and you can continue earning interest on your FD while using it
as collateral.
Why consider FD collateral?
Considering a Fixed Deposit as
collateral can be a wise decision in many situations. Here's why:
1. Quick processing: Since the loan is secured by your FD, banks can approve and disburse it faster
due to the minimal risk involved.
2. Retain FD benefits: When you take a loan
against your FD, you continue earning interest. This means your investment continues to grow even as you
borrow against it.
3. Security: Knowing you can meet financial needs without liquidating your investments provides
security and peace of mind.
4. Flexible repayment options: You can choose repayment terms that suit your financial
situation, whether regular EMIs or paying off the loan at the end of the FD term.
How to apply?
To avail of a loan against your FD, you need to follow these essential steps to apply for using Fixed Deposit as
collateral:
1. Approach your bank: Contact the Axis Bank where you hold the FD.
2. Loan amount: The loan amount typically ranges from 70% to 90% of the FD value. This is known
as the loan margin.
3. Interest rates: The interest rate on a loan against FD is usually 1-2% higher than the FD interest rates. For example, if
your FD earns 6% interest, the loan interest rate might be 7-8%.
4. Repayment terms: The loan tenure can be up to the remaining tenure of the FD. You can opt
for regular EMIs or repay the entire loan at the end of the term.
Benefits of FD as collateral in India
1. FD liquidity: By taking a loan against your FD, you can convert a non-liquid asset into a liquid
one without breaking the deposit prematurely.
2. Fixed Deposit security: It provides a sense of security, knowing that your financial needs
can be met without sacrificing your investments.
3. Bank Loan collateral India: Many banks in India offer this facility, making it widely
accessible for FD holders.
4. Fixed Deposit guarantee: The FD remains intact and continues to earn interest, guaranteeing
returns while serving as collateral.
Also Read: Top 5 reasons to open a Digital Fixed Deposit
Conclusion
Using Fixed Deposits as collateral for loans is a smart financial move. This approach provides you with liquidity and
security, meaning you can access funds when needed without breaking your FD. Loans against FDs come with lower
interest rates, quick approval, and minimal paperwork, making the process smooth and efficient. Overall, using your
FD as collateral allows you to enjoy financial flexibility and meet your financial needs without compromising your
investments.
Disclaimer: This article is for information purpose only. The views expressed in this article
are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd.
and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader
for taking any financial decisions based on the contents and information. Please consult your financial advisor
before making any financial decision
