An FD-backed credit card, also known as an FD credit card, is a type of secured credit card issued against a fixed deposit (FD) held with the bank. This means the credit card is secured by the funds you deposited in your fixed deposit account. This type of credit card is an excellent option for individuals who may not qualify for a regular unsecured credit card due to a low credit score or lack of credit history.
How Does an FD Credit Card Work?
When you apply for an FD credit card, the bank issues a credit card with a credit limit, usually a percentage of the fixed deposit amount. This percentage typically ranges from 75% to 85% of the FD value. The fixed deposit acts as collateral for the credit card, providing security to the bank in case of default.
For example, if you have an FD of Rs. 50,000, the bank may issue you an FD credit card with a credit limit of Rs. 37,500 to Rs. 42,500. The fixed deposit continues to earn interest, adding to its benefits.
Benefits of an FD Credit Card
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Easier Approval:
One of the primary benefits of an FD credit card is the ease of approval. Since the fixed deposit secures the card, banks are more willing to issue these cards to individuals with low credit scores or no credit history. This makes it an ideal option for students, freelancers, and homemakers who may find getting an unsecured credit card challenging.
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Build or Rebuild Credit Score
Using an FD credit card responsibly can help you build or rebuild your credit score. Regular use and timely payments are reported to credit bureaus, which can positively impact your credit history. This can be particularly beneficial for those looking to improve their credit score to qualify for better financial products.
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Interest on Fixed Deposit
The fixed deposit linked to your FD credit card continues to earn interest. This means you benefit from the security of having a fixed deposit and the flexibility of using a credit card. The interest earned on the fixed deposit can offset some of the costs associated with the credit card.
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Credit Card Cash Withdrawal
FD credit cards often come with the feature of credit card cash withdrawal. This allows you to withdraw cash from ATMs up to a certain limit. While this feature can be useful in emergencies, it’s important to note cash withdrawals typically come with higher interest rates and fees than regular credit card transactions.
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Rewards and Benefits
Many FD credit cards offer rewards programs similar to unsecured credit cards. These rewards can include cashback, reward points, and discounts on purchases. Some cards offer additional benefits like complimentary airport lounge access, fuel surcharge waivers, and more.
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Low Documentation
Applying for an FD credit card requires minimal documentation. If you already have an FD with the bank, you may not need to submit additional documents for the credit card application. This simplifies the process and makes it quicker to get approved.
Features of an FD Credit Card
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Secured Credit Limit
The credit limit on an FD credit card is secured against the fixed deposit. This means your spending limit is directly linked to the amount in your FD, providing a secure way to manage credit.
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Interest-Free Period
FD credit cards offer an interest-free period on purchases, typically 45 to 50 days. You won’t incur any interest charges if you pay your bill in full within this period.
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Low Annual Fees
FD credit cards often have lower annual fees than unsecured credit cards. This makes them affordable for individuals who want to manage their finances efficiently.
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Cash Withdrawal Limit
FD credit cards provide a credit card cash withdrawal limit, which allows you to withdraw cash from ATMs. This limit is usually a percentage of the overall credit limit and comes with associated fees and interest rates.
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24/7 Customer Support
Most banks offer round-the-clock customer support for FD credit cardholders. This ensures you can get assistance with any queries or issues related to your credit card.
How to Use FD Credit Card Effectively?
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Timely Payments: Always pay your credit card bills on time to avoid late fees and interest charges. This will also help improve your credit score.
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Monitor Spending: Keep track of your expenses to ensure you stay within your credit limit and avoid overspending.
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Use Rewards: Maximise the value of your FD credit card by taking advantage of its rewards and benefits.
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Avoid Cash Withdrawals: Credit card cash withdrawal is an available feature, but it should be used sparingly due to its higher costs.
Conclusion
An FD credit card is a valuable financial tool that offers numerous benefits, especially for those with limited or poor credit history. By securing your credit card with a fixed deposit, you can enjoy the convenience and benefits of a credit card while earning interest on your FD. Whether you want to build your credit score, enjoy rewards, or have a reliable credit option, an FD credit card can be an excellent choice. Always use your FD credit card responsibly to maximise its features and benefits.
