What Is An FD-Backed Credit Card And How Can It Boost Your Financial Flexibility? | Savings and Investments News

FD backed credit card
(Representative Image)

An FD-backed credit card is a financial product linked directly to a fixed deposit (FD), which acts as collateral to secure the cardholder’s credit limit. By leveraging a fixed deposit, these cards offer a safer borrowing experience compared to unsecured credit cards, making them particularly useful for individuals with limited or no credit history. Lending institutions issue such cards only after verifying the fixed deposit, ensuring the loan is fully backed.

How Do FD-Backed Credit Cards Work?

When you pledge a fixed deposit to a bank, you gain access to a credit limit, typically ranging from 70% to 90% of the FD amount. Importantly, the FD remains intact and continues to earn interest while serving as security.

If you miss credit card payments, the bank can recover dues by encashing the FD. Otherwise, the card works like a regular credit card, allowing you to manage day-to-day expenses and bill payments.

Key Benefits of FD-Backed Credit Cards

1. Easier Approval: Collateral reduces the need for a strong credit score.
2. Interest Earnings: The fixed deposit continues to earn around 6–7% per annum, even while securing the card.
3. Credit Building: Timely repayments help build or rebuild your credit history.
4. Lower Interest Rates: Reduced risk translates to lower interest rates than unsecured cards.
5. Rewards and Offers: Cardholders can enjoy cashback, rewards, and other benefits.

Who Can Benefit?

FD-backed credit cards are ideal for:

• First-time credit users looking to enter the credit system.
• Individuals aiming to rebuild their credit score (e.g., a person with a credit score of 600).
• Borrowers seeking to secure credit with low minimum FD requirements (as low as Rs 5,000–Rs 20,000).

Banks and fintech companies also use these cards to provide financial literacy lessons, helping users manage credit responsibly.

Smart Savings and Credit Management

FD-backed credit cards allow cardholders to maintain savings while enjoying credit flexibility, combining safety with financial opportunity. This makes them a prudent choice for aspiring borrowers who want to expand their credit lines without risking their investments.

Before opting for an FD-backed credit card, it’s wise to consult a certified financial advisor. Potential risks include high interest charges, missed payments impacting credit scores, hidden fees, and fraud, which should be carefully considered alongside the benefits.