What is the Interest Rate for a Loan on a Fixed Deposit?

Did you know that you could get a loan against your FD? Well, if you didn’t, and you do have an FD account – you might want to know about this in detail. Well, first things first, let us get to know more about your FD. A fixed deposit has been one of the most used investment tools for decades together. Why is it trusted so much, what are its benefits of it, how is it important to you, and most importantly, how is it just more than a fixed deposit tool for you? The answer to all of that you will find in this article. Without any further wait – let’s get going.

What is a Fixed Deposit? Who is it For?

A fixed deposit is a scheme where you can tie up your lump-sum investment for a fixed tenure. It could be anywhere, starting from a few thousand to crores. You can invest it as a whole into the scheme, beginning from a period of 7 days all the way to 10 years, and you can earn interest over it. The fixed deposit is not tied to market volatility, which means the returns will always be guaranteed to you, and you would not face any law. Also, it is only available with registered banks and institutions – which means you do not have to worry about any kind of safety issues. 

This scheme is for investors who have no risk tolerance. We will say why later on. But, if you are one that does not want to lose any money in the process of losing it – this investment is meant for you, and you need to keep reading to find out more about it.

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What are the Major Features of a Fixed Deposit?

Here are some of the critical characteristics of the FD schemes. You can take a look at them to know if they are the benefits you would like to have in your investment:

1) You Get Attractive Interest Rates – The Interest rates of a fixed deposit are much greater than a savings account, and you would also want to know that different banks will give you different rates of interest on their FD accounts. To your surprise, the best interest rates for fixed deposits in Indian banks can go up to 8% per year. 

2) You have the Option of ‘Choices’ – In an FD, you will get to choose from different options. You get to choose the tenure that you want to be invested for, and as mentioned before, this tenure can range anywhere from 7 days all the way to 10 years. This means the investment is suitable for short-term and long-term investors in the market. Based on these tenures, the interest rates of the investments too would vary. Investors will get to choose from different options when it comes to the banks and institutions of investment. Today, not just banks but even post offices and NBFCs offer their customers FDs, which will benefit the investor.

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3) It is a Fixed Investment (as suggested in the name) – An investor can be sure that this money will not be withdrawn or it would not be used for unnecessary spending. The amount in this account cannot be withdrawn until the maturity date arrives. 

4) It is 100% Risk-Free – The FD is not linked to any market equities. This means the returns as agreed upon by you and the bank will always be the same. The returns on your investments could never change (except when you have to pay the taxes on the interest that you have earned).

5) You can Also Get a Premature Withdrawal – There are cases when you can actually make a premature withdrawal of your FD. But, for this, you will lose some amount of interest that you have earned on your investment. Along with that – you will also have to pay the penalty for the premature withdrawal. Now, this penalty is a reasonable one if you think about it. It serves the bank’s needs for the tenure that was signed upon, and it makes it complicated to withdraw beforehand. Moreover, most often, the banks would typically charge you 1% or below that as a penalty charge – which is quite reasonable.

6) You Could Also Get a Loan Against your FD – Now, as mentioned above, whenever you have a cash crunch, you can break off your FD prematurely. But, did you know you always would not have to do that? This is because you can get a loan against your FD. This means your FD will play as collateral for your loan. You would not have to break it off, but you can pay off the loan for your cash requirement. 

Everything You Need to Know About the Loan Against an FD

Let’s make one thing very clear about the interest rates on your loans (against an FD). There is no fixed interest rate since every bank will give you a different rate of interest against this loan. 

Common Characteristics of the Loan Against an FD

Now, just as the interest rates would change from bank to bank – the features also could vary slightly depending on the bank:

  1. a) You can get up to 90% of your FD amount as the loan.
  2. b) There usually is no penalty on the prepayment of the loans.
  3. c) You can also get it as a demand loan or overdraft.
  4. d) There could sometimes be processing fees on the loans.
  5. e) The loan needs to be repaid, or your FD will be used as collateral.


Just like any other investment, the FD also has its own set of perks – you need to use them to the fullest. So, if you are having a cash crunch and are thinking about breaking your FD before the date of the maturity – you can use this approach; you can get a loan against your deposit.