What is Loan Against FD (Fixed Deposit)? Features & How it works?

3 min read

Feature & Benefits of Loan Against FD


In case of any cash requirement, opting for a Loan against FD (Fixed Deposit) from banks is a time-efficient way of getting short-term loans. You can opt for it without liquidating your fixed deposit. This article discusses the features and benefits of loans against FD and solves your queries like, “ Can we get the loan on a fixed deposit” and “How much loan can I get against my FD’?

Loan Against FD (Fixed Deposit)

What is Loan Against FD?

Some investors may consider liquidating their FD investments during financial emergencies before maturity. However, liquidating your Fixed Deposit (FD) in case of cash requirement is not a profitable decision. If you do so, you lose out on the interest and pay a penalty amount. In addition, once the FD is liquidated, the bank pays interest at a lower rate than the rates at which the FD was approved and the interest rate on the day of liquidation. However, you can tend to emergencies without breaking your FD by taking a loan against a fixed deposit. This is a good option as it ensures that the benefits you derive from the Fixed Deposit account stay intact and offers the loan at a comparatively lower interest rate.

A loan against FD (Fixed Deposit) is a secured loan where customers can pledge their fixed deposit as security and get a loan in return. The application for loan against a fixed deposit is usually approved in an Overdrive or Demand Loan.

  • Loan Amount:  The loan amount depends on the FD deposit. The overdraft limit against FD backed by a fixed guarantee is lower than the deposit amount. You can avail up to 85-95% of the value of your fixed deposit.
  • Interest Charged: Interest charged on loans is higher than the applicable FD interest rate (Banks and NBFCs usually charge 0.5% to 2% interest rates above the applicable FD interest rates)

Thus, you can opt for a loan against FD without losing interest and paying the penalty for breaking the fixed deposit.


1. Loan against fixed deposits is extended to all the fixed deposit holders, be it individual holders or those with joint accounts.

2.     FD in the name of a minor does not qualify for this facility.

3.     Investors in 5-year tax-saving FDs cannot apply for this type of loan.

Features & Benefits of Loan Against FD

1. Lower Interest Rates

Your fixed deposit acts as a security for a loan, so the interest rate charged on these loans are lower. As a result, the loan against FD interest rates are usually lower than those on personal loans by about 2% to 2.5%. Hence, these loans’ Equated Monthly Installments (EMIs) are also lower. The loan against fixed deposit calculator works well here.

2. No Processing Fees

Banks charge a percentage of the loan amount as the processing fees for sanctioning the loan. But most banks do not set this price for OD against FD.

3. No Need to Break FD

When you liquidate FD in case of any short-term cash requirement, you lose out on the interest and end up paying a significant fee, a penalty fee. Thus, opting for maybe a home Loan against FD avoids this type of loss since you don’t need to break your FD.

4. Minimal Paperwork

Banks already have the details you furnished during your FD’s opening; the documentation required for availing the loan against your FD will be minimal. You will not be required to submit documents such as your proof of income, Income Tax Returns (ITR) etc.

5. No Credit Score Check

When you apply for any loan, lenders will look at your credit score before offering you a loan. However, in the case of a loan against post office FD, your CIBIL or credit score will not be considered while evaluating your eligibility. Hence, such loans can be a good option for people with low or no credit scores.

6. No Prepayment Fee

When you prepay any loan, the banks lose out on the interest and hence, they will charge you a penalty for the same. However, in the case of a loan against FD, no liability is charged as banks do not lose out on the interest amount. Instead, they profit from it as they do not have to pay you any interest on the loan amount.

2 thoughts on “What is Loan Against FD (Fixed Deposit)? Features & How it works?

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.