Loan Against FD Benefits

Fixed deposits have always been the traditional method of savings. This is because an FD is a safe and secure form of earning interest. Also, FDs are not exposed to market conditions leaving the financial instrument’s returns guaranteed. The interest rate on FDs are fixed and do not fluctuate unlike other investment instruments such as mutual funds. 

But can you take a loan against fixed deposits? Emergencies do not come announced; they appear out of nowhere leaving you wanting funds. Most of the time, FDs are broken to cater to the emergency. This leads to a loss in interest as well as putting a brake on your investment plans. 

A loan against FD can rescue you during emergencies without having to break your fixed deposit. Below are some of the benefits of availing a loan against FD: 

Low Rate of Interest 

The primary driver of this type of loan is the low FD rate of interest. Banks and lenders offer a much lower interest rate on loan against FDs. This is because of the security of the FD that the bank relies on. If the rate of interest is low on a loan, the Equated Monthly Instalment (EMI) will be low when compared to other forms of loans. Also, some banks offer to charge interest on the utilised amount and not on the entire amount, making it a feasible option to avail a loan during emergencies. 

Higher Loan Amount 

Financial institutions offer up to 90% of the FD while extending the loan to you. There is no limit set on the amount of loan that can be extended, so, some banks and lenders might even offer more than this. It depends on banks to banks and the amount deposited. 

Faster Process 

With an emergency to attend to, you’ll need funds as soon as possible. With loans against FDs, banks and lenders are able to process your request much faster than other loans such as personal or home loans. Some even process the loan within 24 hours through their online banking services. This is because FDs act as security against the loan hence, banks are ready to extend the loan at the earliest. 

Low Processing Fee 

Most of the banks and lenders do not charge any form of processing fee unlike home or personal loans. Some may levy low fees on the loan, making it an ideal approach to avail a loan against an FD. However, it’s important that you negotiate any type of charges so that you take advantage of a lower interest, which leads to a lower EMI. 

Minimal Documentation 

With new technologies, financial institutions have fast-tracked the entire process through digital technology. Additionally, with your FD acting as a collateral or security, banks and lenders usually do not require several documents before they can sanction the loan. It could simple formalities such as the application for the loan.  

Prepayment/Foreclosure Charges 

Most of the lenders do not charge a prepayment fee on loans against fixed deposits. Some do charge; however, they are not high as a regular personal or home loans. Do negotiate the fee, if applicable, to take advantage of lower cash outflow. 

In conclusion, loan against FDs is one of the best options to avail a loan which is hassle-free and disbursed at the earliest. Take note of the terms and conditions imposed by the lender before you apply for a loan on fixed deposits. 


Am a content marketer and financial writer. I have 7 years of experience in the financial domain, predominantly in the insurance business. Am very passionate about travelling and also maintains a blog where. Offers financial advice and review of insurance products and investment products like FD Interest Rates, Mutual funds ..etc