Loan Against Fixed Deposit: Key Eligibility Rules, Charges, and Interest Rates You Should Know

By | May 20, 2025

Need quick funds but don’t want to break your fixed deposit? A loan against fixed deposit (FD) could be your best option. It’s a convenient way to access money without disturbing your savings. However, before applying, it’s crucial to understand the eligibility criteria, how the interest rate is calculated, and what fees may be involved.

Here’s a detailed guide to help you make an informed decision before opting for a loan against your FD.

What is a Loan Against Fixed Deposit?

This type of loan is a secured borrowing where your fixed deposit serves as collateral. Unlike personal loans, which are unsecured and come with high interest rates, loans against FDs are much cheaper and quicker to process.

The best part? Your FD continues to earn interest while you get access to funds without premature withdrawal.

Why Choose a Loan Against FD?

There are several reasons people prefer this over other loan options:

  • Faster processing – Since the bank already holds your FD, the loan approval is quick and often requires minimal paperwork.
  • Lower interest rates – These loans typically come with interest rates just 1% to 2.5% higher than your FD rate.
  • No credit history needed – Your credit score has minimal impact since the loan is backed by your deposit.
  • Continued FD benefits – You still earn interest on your FD while using it as security.
  • Flexible repayment – You can repay at maturity or through EMIs, depending on the bank’s terms.

Who Can Apply? – Eligibility Criteria

Although it’s an easy-to-access financial product, there are a few basic requirements you’ll need to meet:

  1. Existing FD with the lender
    You must have an FD with the bank or financial institution you’re applying to. If your deposit is with Bank A, you can’t seek the loan from Bank B.
  2. Minimum deposit amount
    Most banks set a minimum FD amount—usually around ₹10,000 to ₹25,000—to qualify for this loan.
  3. Eligible account holders include:
    • Individuals, including senior citizens
    • Joint account holders (both must provide consent)
    • Minors through guardians
    • Firms, trusts, and companies holding FDs in their names
  4. Loan tenure aligned with FD maturity
    The loan is valid only until the FD matures. Once it does, the loan must be settled.
  5. Ineligible FDs
    You cannot avail a loan against tax-saving FDs, which are locked in for five years and cannot be withdrawn early.

Loan Amount: How Much Can You Borrow?

The loan limit is usually a percentage of your FD’s value. Most banks offer between 75% and 90% of the FD amount.

For instance, if your FD is ₹1,00,000, you might be eligible for a loan ranging from ₹75,000 to ₹90,000, depending on the institution’s policies.

Interest Rate: What to Expect

One of the key advantages of a loan against FD is the attractive interest rate.

  • The rate is typically 1% to 2.5% higher than your FD’s interest rate.
  • So, if your deposit earns 6.5%, your loan may carry an interest of around 7.5% to 9%.

This is much lower than personal loan rates, which often range between 11% to 18%.

Charges You May Incur

Though these loans are economical, there may be some charges to keep in mind:

  • Processing fee – Some banks waive this entirely, while others may charge a nominal fee (typically ₹500 to ₹1,000).
  • Documentation charges – Usually minimal or zero.
  • Foreclosure or prepayment penalty – Often nil, but always check with your bank.
  • Late payment penalty – If you miss EMIs or delay repayment, penal interest may apply.

Reading the fine print is important to avoid surprises later.

Repayment Options

Repayment terms are usually linked to your FD’s maturity. You can:

  • Repay the full amount at once when the FD matures
  • Choose monthly EMIs during the loan tenure
  • Opt to have the bank adjust the loan amount against the FD when it matures

If the borrower defaults, the bank has the right to recover the outstanding amount by closing the FD prematurely.

When Should You Consider This Option?

A loan against FD is suitable in many real-life situations, such as:

  • Sudden medical bills
  • Temporary cash flow issues
  • Education or travel expenses
  • Avoiding early FD withdrawal and the penalties that come with it

It’s especially useful when you want to keep your savings intact for future goals while still addressing short-term financial needs.

Pros and Cons at a Glance

Advantages:

  • Quick access to funds
  • Low interest rates
  • No impact on credit score
  • FD remains intact

Possible drawbacks:

  • Limited to FD tenure
  • Can’t use tax-saving deposits
  • Loan recovery through FD if you default

Final Thoughts

A loan against fixed deposit offers a practical and affordable way to meet financial emergencies without compromising your long-term savings. It’s an excellent choice for individuals who want liquidity without breaking their FD.

Still, it’s essential to compare loan terms from different banks, check the applicable charges, and ensure you’re comfortable with the repayment schedule. Understanding all aspects beforehand helps you use this financial tool wisely and responsibly.