1) A loan against a fixed deposit allows the depositor to take out a loan of 70-90% of the deposited amount at an interest rate of 2-2.5% above the FD rate. 2) The maximum loan tenure is equal to the tenure of the fixed deposit. Interest is charged monthly on the amount withdrawn, not the full loan amount. 3) Taking a loan against a fixed deposit offers lower interest rates than personal loans and allows the depositor to continue earning interest on the deposited amount. The fixed deposit cannot be closed early while the loan is outstanding.

1. Loan Against
Fixed Deposit
(FD)

2. INTRODUCTION
Fixed Deposit is one of the most popular financial
instruments known to us. The ease of investment in this
product, its guaranteed returns, flexibility and so many
other features make it a favorite among the people.
When an emergency arises, we look for Loan from
various sources. Did you even think of loan from a fixed
deposit? Yes, you can avail of a loan from your fixed
deposit. How does it work and what are the conditions?
Let’s explore this.

3. o How is it given ?
Loan against Fixed Deposit given in the form of
overdraft against your deposited amount. This is an
alternative given to you instead of breaking the deposit
prematurely.
o How much loan is allowed?
Most of the banks allow a loan in the range of 70-90%
of the deposit amount. Some banks even offer more than
this range. There is no standard on the amount of loan that
can be sanctioned. It varies from bank to bank and also
upon the amount deposited. For instance, if you have a
fixed deposit of Rs 1 lakh, you can borrow up to 90 per
cent of the deposit amount with a margin of 10 per cent.

4. INTEREST RATE ON THE LOAN
Interest will be charged on the amount drawn and not
the limit set. It is around 2-2.5 % over the fixed deposit rate.
Say, you have a deposit of Rs 1 lakh earning an interest of
10.5 % a year. At 25 % margin, your overdraft limit is set at
Rs 75,000. If you need Rs 30,000, you can withdraw it from
the overdraft account at 12-12.5 % (2-2.5 % over
deposit rate). The interest will be charged on Rs 30,000 and
not Rs 75,000.
• Processing fees :-
The processing fees charged for this loan is low
compared to personal loans. Sometimes, banks waive off
the processing fee. As this is a secured loan, the lender may
or may not want to know if you have the cash flow to repay
it. Most government-owned banks do not levy a charge on
loans against FD, but a few private sector banks may charge
a few hundred rupees.

5. TENURE AND REPAYMENT PROCEDURE
The maximum loan tenure offered for loan
against Fixed Deposit is the term of the deposit itself. You
can schedule your repayment mode on your own: pay a
fixed amount every month or as pre-decided with the bank.
Some banks insist that the interest be paid every month;
you can even settle the loan at the time of the maturity of
the FD. You can repay in equated monthly installment's or
service only the interest amount, or even choose to pay
back the entire amount borrowed when the deposit
matures.
At the time of maturity borrowed amount plus interest
exceeds deposit amount hence we keep the margins in
such a way that it takes care of the loan even if the
customers fails to repay.
Most banks do not have pre-closure charges.

6.  Tax benefits
Salaried individuals cannot get tax benefits on the
interest paid on loans against fixed deposit’s. Self-
employed individuals using the funds for the purpose of
business can deduct the interest paid as a business
expense from their business income and pay tax on the
remaining amount only.
 Foreclosure of the loan
Banks usually do not levy any penalty in case of
foreclosure on the loan against Fixed Deposit.

7.  Loan against NRI FDs
Banks like SBI, Axis bank, HDFC bank and ICICI
bank etc. provide loan against Fixed Deposits to non-
resident individuals (NRIs). NRIs can invest in NRI
Fixed Deposits through their NRE, NRO and FCNR
account and get demand loan or overdraft against their
Fixed Deposit account’s. For example, HDFC bank
offers loan against Fixed Deposits up to 90% of the value
of you NRE fixed deposits. Axis bank offers up to 85%
of the value of your NRE fixed Deposits opened with it.
Loan against NRI Fixed Deposits can be taken in
Indian rupees as well as Foreign currency.

8. Benefits of taking a loan against Fixed Deposit
• It can help to get short term money for any kind of financial
requirements without breaking your FDs.
• The most important you can get a loan at comparative and
lower rates of interest than other personal loans.
• Banks in India offer maximum loan up to 90% of the value of
your Fixed Deposit.
• You can access the loan amount with cheque book, ATM and
internet banking with banks like Axis bank.
• It also saves you from selling your assets at discounted value to
fulfill your monetary needs.
• Less Document required compare to other Personal loans.
• Low Risk (secured loan)

9. Documents Required :-
• Loan application form
• Demand Promissory note
• Letter of continuity (in case of OD)
• Letter of lien and set off
• Deposit receipt duly discharged
• Authority to adjust the principal and interest
towards the loan on maturity
• Guardian’s declaration (in case of minors)

10. BANK NAME LOAN AMT
(OF DEPOSITS AMT)
INTEREST RATE
STATE BANK OF INDIA
90% 5.50% TO 7.60%
ICICI BANK
90% 4.50% TO 7.75%
AXIS BANK
85% 5.50% TO 9.50%
HDFC BANK
90% 5.50% TO 9.25%
DEUTSCHE BANK
95% 7.00% TO 9.75%
FEDERAL BANK
90% 7.00% TO 9.25%
CANARA BANK
90% 5.25% TO 8.00%
MAHANAGAR CO-OP
BANK
90% 6.25% TO 9.25%
COMPARISON BETWEEN BANKS

11. CONCLUSION
Loan against Fixed Deposit is a great option for
those looking to avail a loan at a better rate when
compared to other loans where interest rates range from
14-30% p.a. Moreover, you will continue to earn interest
on the deposit though you have availed a loan against it.
Remember that you cannot close or break the Fixed
Deposit after availing the loan on account of ‘right to
lien’ clause of the banks. Also there will not be any kind
of tax benefits or deductions for interest paid on this
loan.