Loan Against Fixed Deposit (FD): Interest Rate, Benefits & How It Works in 2026
Introduction
A loan against fixed deposit (FD) lets you borrow money from your bank by pledging your fixed deposit as security, usually at an interest rate just 1% to 2% above the rate your FD earns. If your FD pays 7% a year, you can typically borrow at around 8% to 9% — far cheaper than a personal loan at 11% to 18% or a credit card at 36% to 42%. You do not need to break your deposit, your FD keeps earning interest, and most banks approve the loan within hours with almost no paperwork. This guide explains how a loan against FD works, what it costs at major banks, how much you can borrow, and when it is the smartest borrowing option you have.
Key Takeaways
- A loan against FD typically costs 1% to 2% above your FD interest rate, making it one of the cheapest loans available in India.
- You can usually borrow up to 90% to 95% of your fixed deposit value, depending on the bank.
- Your FD continues to earn interest while the loan is active, and you do not need to break the deposit.
- Approval is fast and easy because the loan is fully secured — many banks offer instant loans against FD through net banking or their app.
- No CIBIL score check is usually required, so it is a good option if your credit score is low or you have no credit history.
- If you fail to repay, the bank can adjust the loan against your FD, so borrow only what you can comfortably repay.
What Is a Loan Against Fixed Deposit?
A loan against fixed deposit, also called an overdraft against FD or a loan on FD, is a secured loan in which your fixed deposit acts as collateral. The bank marks a lien on your FD, which means you cannot withdraw or break the deposit until the loan is repaid, but the deposit stays in your name and keeps earning its full interest. Because the bank holds your money as security, the risk to the lender is almost zero, which is why the interest rate is so low and the approval process is so simple.
There are two common forms. A term loan against FD gives you a lump sum that you repay in monthly EMIs over a fixed tenure. An overdraft against FD gives you a credit limit linked to your deposit: you withdraw only what you need, and you pay interest only on the amount you actually use, for the days you use it. The overdraft form is more flexible and usually the better choice if your need is uncertain or short-term.
How Does a Loan Against FD Work?
Suppose you have a fixed deposit of Rs 5 lakh earning 7% a year. You need Rs 3 lakh urgently. Instead of breaking the FD and losing interest, you take a loan against it. The bank sanctions up to 90% of the deposit value — Rs 4.5 lakh in this case — and charges you interest of around 8% to 9% on the borrowed amount. Your FD keeps earning 7% on the full Rs 5 lakh. Your effective extra cost is only the 1% to 2% spread between the two rates, which is far less than the interest you would lose by breaking the deposit early and paying a premature-withdrawal penalty.
When you repay the loan, the bank removes the lien and your FD is free again. If you take an overdraft, the limit stays available and you can reuse it as long as the FD is active. If you do not repay, the bank can recover the outstanding amount, with interest, by adjusting it against your FD at maturity or earlier.
Loan Against FD Interest Rates in India 2026
Most banks charge 1% to 2% above the interest rate applicable on your FD. The table below shows indicative rates at major banks in 2026. The exact rate depends on your FD rate and the bank’s policy, so confirm it before borrowing.
| Bank | Indicative interest rate | Maximum loan amount |
|---|---|---|
| State Bank of India | FD rate + 1% | Up to 90% of FD value |
| HDFC Bank | FD rate + 1% to 2% | Up to 90% of FD value |
| ICICI Bank | FD rate + 1% to 2% | Up to 90% of FD value |
| Axis Bank | FD rate + 2% | Up to 85% of FD value |
| Kotak Mahindra Bank | FD rate + 1% to 2% | Up to 90% of FD value |
| Punjab National Bank | FD rate + 1% | Up to 90% of FD value |
| Bank of Baroda | FD rate + 1% | Up to 95% of FD value |
| Canara Bank | FD rate + 1% | Up to 90% of FD value |
Some banks also charge a small processing fee of 0.25% to 1% of the loan amount, though many waive it entirely for loans taken through digital channels. There is usually no prepayment penalty, so you can repay early and stop the interest clock whenever you like.
How Much Can You Borrow? An Example
The amount you can borrow depends on the size and remaining tenure of your FD. The table below shows typical borrowing limits and monthly interest costs.
| FD value | Loan available (90%) | Loan rate (FD 7% + 1%) | Monthly interest on full amount |
|---|---|---|---|
| Rs 1 lakh | Rs 90,000 | 8.00% | Rs 600 |
| Rs 2 lakh | Rs 1,80,000 | 8.00% | Rs 1,200 |
| Rs 5 lakh | Rs 4,50,000 | 8.00% | Rs 3,000 |
| Rs 10 lakh | Rs 9,00,000 | 8.00% | Rs 6,000 |
| Rs 20 lakh | Rs 18,00,000 | 8.00% | Rs 12,000 |
Remember that your FD keeps earning interest at the same time. On a Rs 5 lakh FD at 7%, you earn about Rs 2,917 a month in interest while paying about Rs 3,000 a month on a Rs 4.5 lakh loan — a net cost of under Rs 100 a month, before tax. Compare that with a personal loan at 14%, where the same Rs 4.5 lakh would cost about Rs 5,250 a month in interest.
Loan Against FD vs Personal Loan vs Breaking Your FD
When you need money urgently, you usually have three options. The comparison below shows why a loan against FD wins in most situations.
| Factor | Loan against FD | Personal loan | Breaking the FD |
|---|---|---|---|
| Interest cost | FD rate + 1% to 2% | 11% to 24% a year | No interest, but you lose future FD interest |
| CIBIL score needed | Usually not checked | 700+ for good rates | Not applicable |
| Approval time | Same day, often instant online | 1 to 5 days | Same day |
| Documents | Minimal, often none | Income proof, KYC, bank statements | FD receipt or online request |
| FD keeps earning interest | Yes | Yes | No — deposit is gone |
| Premature withdrawal penalty | None | Not applicable | 0.5% to 1% lower rate plus lost interest |
Eligibility and Documents Required
Eligibility for a loan against FD is simple. You must hold a fixed deposit with the bank, either in your own name or jointly. Most banks accept FDs held by resident individuals, senior citizens, and even minors through a guardian. Some banks also accept FDs held in the name of HUFs, trusts and companies. The FD must usually have a remaining tenure of at least a few months, and the loan tenure cannot exceed the remaining tenure of the deposit.
Documents are minimal because the bank already holds your money. In most cases you need only your FD receipt or account details and a signed request form. For online loans through net banking or the bank’s app, no documents are needed at all. Third-party FDs — a deposit in someone else’s name — are generally not accepted unless the deposit holder co-signs as a guarantor, and tax-saving FDs under Section 80C cannot be pledged.
How to Apply for a Loan Against FD in 5 Steps
1. Check your FD details
Note your deposit amount, the interest rate it earns, and how much tenure is left. Your borrowing limit will be 85% to 95% of the deposit value, and the loan must be repaid before the FD matures.
2. Choose between a term loan and an overdraft
Take a term loan if you need a fixed lump sum with a clear repayment plan. Choose an overdraft if your need is uncertain or you want to borrow in parts — you pay interest only on what you use.
3. Apply online through net banking or the bank’s app
Most major banks let you take a loan against FD instantly online. Log in, select your FD, choose the loan or overdraft option, enter the amount, and accept the terms. The money is usually credited within minutes.
4. Visit a branch if you prefer offline
Carry your FD receipt and a valid ID proof. Fill in the loan application, and the bank will mark a lien on your FD and disburse the amount to your savings account the same day.
5. Repay on time and get the lien removed
Repay the loan before the FD matures. Once the outstanding amount is cleared, the bank removes the lien and your deposit is fully free again. If you took an overdraft, keep the account funded so interest does not keep accumulating.
Benefits of a Loan Against FD
The biggest benefit is the low interest rate: at FD rate plus 1% to 2%, it is usually the cheapest loan a retail customer can get. Approval is almost guaranteed because the loan is fully secured, and there is no income proof, no CIBIL check and no long wait. Your FD continues to earn interest, so the real cost is only the small spread between the two rates. There is usually no processing fee for digital applications and no prepayment penalty, and it is one of the few loans available to people with a low credit score or no credit history at all.
Risks and Things to Watch Out For
A loan against FD is not free of risk. If you fail to repay, the bank will recover the dues from your FD, and you could lose the deposit you spent years building. The loan amount is limited by your deposit size, and the loan tenure is capped by the FD’s remaining tenure. Interest on an overdraft is calculated daily, so an unused overdraft left running quietly can accumulate charges. Finally, the interest you pay on the loan is not tax-deductible for personal use, while the interest your FD earns remains taxable, so the net cost is slightly higher than the headline spread suggests.
When Should You Use a Loan Against FD?
A loan against FD is ideal for short-term needs: a medical emergency, a temporary cash-flow gap in your business, paying a large fee or bill, or bridging the gap until a payment arrives. It is also a smart alternative to breaking your FD, because the interest saved usually exceeds the cost of the loan. It is less suitable for long-term borrowing or for needs much larger than your deposit, where a home loan top-up or a personal loan may fit better. If your FD is about to mature in a few weeks, consider waiting for maturity instead, since the loan tenure will be very short.
Frequently Asked Questions
What is the interest rate on a loan against FD?
Most banks charge 1% to 2% above the interest rate your fixed deposit earns. If your FD pays 7%, the loan usually costs 8% to 9% a year, which is much lower than a personal loan.
How much loan can I get against my fixed deposit?
Most banks lend 85% to 95% of the FD value. On a Rs 5 lakh FD, you can typically borrow Rs 4.25 lakh to Rs 4.75 lakh, depending on the bank.
Does my FD keep earning interest during the loan?
Yes. Your FD continues to earn its full interest rate for the entire loan period. Only a lien is marked on it, so you cannot withdraw it until the loan is repaid.
Is a CIBIL score required for a loan against FD?
Usually no. Because the loan is fully secured by your deposit, most banks do not check your credit score, which makes it a good option if your score is low.
Can I take a loan against a tax-saving FD?
No. Fixed deposits made under Section 80C with a five-year lock-in cannot be pledged for a loan. Regular FDs, including those held jointly, can be pledged.
What happens if I do not repay a loan against FD?
The bank will recover the outstanding amount, including interest, by adjusting it against your fixed deposit. Your deposit may be closed to settle the loan, so borrow only what you can repay.
Is it better to take a loan against FD or break the FD?
In most cases, a loan against FD is better. Breaking an FD early costs you a premature-withdrawal penalty and all future interest, while the loan costs only the 1% to 2% spread over your FD rate, and your deposit keeps growing.
Disclaimer: Interest rates in this article are indicative and based on publicly available information in 2026. The actual rate, loan-to-value ratio and charges depend on your bank’s policy and your FD. Always confirm the current terms with your bank before borrowing.
Post Comment