A loan against FD lets you borrow money using your fixed deposit as security. You can usually get 75% to 90% of the deposit value. The interest rate is typically just 1% to 2% above your FD rate. Your FD stays intact and keeps earning interest. For many people, it’s one of the cheapest and safest ways to borrow in India.
If you have an FD and need money, read this before you break it or take a costly personal loan.
What Is a Loan Against FD?
Your fixed deposit acts as collateral. The bank puts a lien on it. That means you can’t withdraw the FD until the loan is repaid. But it still earns interest as usual.
Because the bank is fully covered, it takes almost no risk. That’s why rates are low, and approval is quick.
Most banks offer this in two formats:
| Format | How it works | Best for |
|---|---|---|
| Term loan | Fixed amount, repaid in EMIs | A one-time expense |
| Overdraft against FD | A credit limit; pay interest only on what you use | Irregular or short-term needs |
An overdraft is often the smarter choice. You only pay interest on the days you actually use the money.
Loan Against FD Interest Rate
Here’s the simple formula most banks use:
Loan rate = Your FD rate + 0.5% to 2%
So if your FD earns 7%, your loan might cost around 8% to 9%. Compare that with other options:
| Type of borrowing | Typical annual cost |
|---|---|
| Loan against FD | FD rate + 1% to 2% |
| Gold loan | Around 9% to 18% |
| Personal loan | Around 10.5% to 24% |
| Credit card revolving | Around 36% to 45% |
| Short-term app loans | Can exceed 100% |
The exact loan against FD interest rate depends on your bank and the FD’s rate. Always check with your own bank first.
How Much Can You Borrow?
Most banks allow 75% to 90% of the FD value. Some go up to 95%.
For example, if your FD is ₹2,00,000 and the bank allows 90%, you can borrow up to ₹1,80,000.
The loan tenure usually can’t go beyond the FD’s maturity date.
Loan Against FD vs Breaking Your FD
Many people just break the FD. Let’s see if that’s actually cheaper.
Say you have a ₹2 lakh FD at 7% with one year left. You need ₹1.5 lakh for three months.
Option A: Break the FD
- You lose part of the interest you would have earned.
- Most banks also charge a premature withdrawal penalty, often 0.5% to 1%.
- You lose the higher locked-in rate if rates have fallen since.
Option B: Take a loan against FD at 8.5%
- Interest for three months on ₹1.5 lakh ≈ ₹3,190.
- Your full ₹2 lakh keeps earning 7% the whole time.
- Your FD rate stays locked.
For short needs, the loan often costs less than breaking the FD. For long needs, breaking might be simpler. Do the math for your case.
Loan Against FD Calculator: A Quick Way to Estimate
You don’t need a fancy tool. Use this simple method:
Interest cost ≈ Loan amount × Rate × Months ÷ 12
Example: ₹1,00,000 × 8.5% × 6 ÷ 12 = ₹4,250 for six months.
For an overdraft, use only the amount and days you actually used. That makes it even cheaper.
Eligibility and Documents
This is one of the easiest loans to get:
- You must be the FD holder, or a joint holder with consent.
- The FD must usually be with the same bank.
- CIBIL score is rarely a major factor, since the loan is fully secured.
- Minor FDs and some tax-saver FDs may not qualify.
Documents are minimal. If you’re already a customer, many banks let you apply in their app or net banking. Money can arrive the same day.
Note: 5-year tax-saving FDs usually can’t be pledged. Check before you plan around one.
Pros and Cons of a Loan Against FD
Pros
- Low interest rate
- Quick approval, often online
- No big dependence on CIBIL score
- Your FD keeps earning
- Usually no prepayment charges
Cons
- Limited to your FD amount
- The FD is locked until you repay
- If you don’t repay, the bank can adjust the FD
- The FD interest is taxable, while loan interest usually isn’t deductible
When a Loan Against FD Is the Smart Choice
This is one of the options we suggest most at TapTap Loans. It works well when:
- You need money for a short time, like 1 to 12 months.
- You want to avoid a high-cost personal loan or app loan.
- Your credit score is low, and banks are rejecting you.
- You want to clear an expensive debt, like credit card dues.
Here’s a real-world style example. Someone owes ₹80,000 on a credit card at 42% a year. They have a ₹1 lakh FD. A loan against the FD at around 8.5% clears the card. They save thousands in interest every month.
That’s what better guidance looks like. Use the cheapest money you already have access to.
When to Avoid It
It’s not the best fit if:
- You need money for many years. The FD may mature first.
- The FD is your only emergency fund, and the need isn’t urgent.
- You’re using it for risky things, like trading or speculation.
Frequently Asked Questions
Most banks charge 0.5% to 2% above your FD rate. So if your FD earns 7%, the loan against FD may cost around 7.5% to 9% a year.
Usually 75% to 90% of the FD value. Some banks allow up to 95%. The exact limit depends on your bank’s policy.
Not usually. Because the FD fully secures the loan, banks focus less on your credit score. It’s one of the easier loans to get with a low score.
For short-term needs, a loan against FD often costs less, because your FD keeps earning and you avoid the premature withdrawal penalty. For long-term needs, breaking it may be simpler.
Most banks only lend against FDs held with them. If your FD is elsewhere, check with that bank first.
Conclusion
A loan against FD is simple, cheap, and fast. You keep your savings, you keep earning interest, and you borrow at a rate close to your FD rate.
Before you break a deposit or take a costly loan, check this option with your bank. For short-term needs and for clearing expensive debt, it’s often the smartest move.
