Fixed deposits (FDs) are known as one of the most stable investment options to grow your savings. But beyond safety and interest rates, it can unlock credit access as well. Getting a credit card backed by a fixed deposit can be a practical approach to bring flexibility while growing your savings. It offers an easy approach to get credit cards and encourages financial discipline. Besides that, here we will discuss a few more benefits of using FD-backed credit cards.
1. Easy Access to Credit
When you approach banks to apply for credit cards, they often ask for income proof or existing credit history to approve the application. This may act as a roadblock to first-time users, students or self-employed individuals who may not have a credit history. By offering a credit card against a fixed deposit, banks reduce their risk since they hold your fixed deposit as collateral.
This amount acts as collateral and replaces the requirement to check your credit history. For example, banks like AU Small Finance Bank allow you to get FD-backed credit cards by making a fixed deposit of ₹20,000 onwards.
2. Building a Credit Score from Scratch
Credit history extensively influences future loan approval. You can begin to create your credit history with a credit card against FD. After that, use that credit card and pay every bill on time, as it helps to improve your credit score. In a few months, your credit report can be stronger and you will be able to get better financial products with more limits, lower interest as well as additional rewards on day-to-day spending.
3. Retaining Savings While Leveraging Credit
Another advantage of FD-backed credit cards is that your deposit is not utilised. It keeps accruing interest as it serves as security to your card. This two-fold advantage is attractive to those who wish to get the stability of assured returns, yet have the convenience and benefits of credit cards to make purchases or pay bills. Instead of liquidating your savings, you let them grow while accessing credit whenever required.
4. Flexible Credit Limits
With an FD-backed credit card, the usage limit is usually linked to a specific percentage of the fixed deposit. This option gives you the flexibility to decide how much credit access you would prefer. A larger deposit means a higher limit, while a smaller one can be used to get rewards and cashbacks on daily transactions. This approach naturally prevents overspending while still providing an adequate limit to get rewards on everyday expenses or online transactions.
5. Cashbacks and Discounts
Banks like AU Small Finance Bank also offer rewards, cashback, or discounts on FD-backed credit cards. This implies that you will be able to enjoy other perks, such as shopping or travel deals at reduced charges. With FD-backed credit cards, you may also get domestic airport lounge access per quarter upon spending more than ₹20,000 in a calendar quarter.
6. Encourages Financial Discipline
With an FD-backed credit card, you can fulfil all your current financial needs while keeping your savings intact. Simultaneously, as your limit on cards is linked to the deposit, it prevents excessive spending. Such moderation of availability and control promotes financial discipline among individuals.
Final Thoughts
A fixed deposit serves as a credit card collateral, which balances security with flexibility. It provides access to credit without income documentation, assists in establishing a credit score, and saves your money without raising the cost of borrowing. This approach makes FD-backed credit cards a practical and reliable option for both first-time users and those seeking to get additional benefits from fixed deposits.
