Loan Against Fixed Deposit: Rates, LTV Limits and Charges
Loan Against a Fixed Deposit
A loan against a fixed deposit lets you borrow against money you have already deposited, without closing the deposit. The bank marks a lien on it, lends you up to 90% of its value, and charges around 1% more than the deposit is paying you. The deposit keeps earning throughout.
It exists for one situation: you need money for a few months, and breaking the deposit would cost more than borrowing. Worked below, that difference is usually larger than people expect.
Dhanvantri Capital Services Private Limited, known as Dhanvantree, is an AMFI-registered mutual fund and SIF distributor (ARN-194216). We are not a lender. This page explains how the facility works at Indian banks.
Sources: State Bank of India product terms · Reserve Bank of India · bank schedules of charges. Terms vary by lender. Figures current at [date].
What is a loan against a fixed deposit?
A loan against a fixed deposit is secured borrowing using your own as collateral. The bank places a lien on the deposit. The money stays yours and keeps earning the contracted rate, but you cannot withdraw it. And lends you a proportion of its value. Repay the loan and the lien is released.
Because the bank already holds the security, almost everything that slows an ordinary loan disappears. No income proof, no credit assessment in most cases, no processing fee at most banks, and disbursal the same day if the deposit is with the bank you are asking.
The bank’s risk is close to nil: if you stop paying, it recovers from the deposit it is already holding. That is why the rate is a small margin over what the deposit pays rather than the 11% to 24% an unsecured personal loan costs.
Loan or overdraft: which one to take
A demand loan hands you the full amount at once and charges interest on all of it from day one. An overdraft gives you a limit you can draw against, and charges interest only on what you actually use, for the days you use it. For an uncertain requirement the overdraft is usually cheaper.
Take a ₹3 lakh facility against a deposit at 8%, needed over six months.
As a demand loan, you receive ₹3 lakh immediately and pay interest on ₹3 lakh for six months, whether or not you spend it all, about ₹12,000.
As an overdraft, you draw ₹1 lakh in month one, another ₹1 lakh in month four, and repay in month six. Interest runs only on the outstanding balance for the days it is outstanding, roughly ₹5,000 on the same headline rate.
The loan suits a known, one-off payment: a fee, a deposit, a purchase. The overdraft suits an uncertain one, a gap in cash flow, a medical situation where the total is not yet clear, a business cycle.
At SBI the two also carry different limits. A demand loan runs up to 90% of the deposit and as long as 120 months; an overdraft runs to 90% on a cumulative deposit but 75% on a non-cumulative one applied for online, and caps at five years. Neither can outlast the deposit itself.
How much you can borrow
Most banks lend up to 90% of the deposit value. Bank of Baroda goes to 95%; Axis and Kotak Mahindra stop at 85%. SBI, ICICI, Yes Bank, Punjab National Bank and Canara Bank all sit at 90%. The percentage is applied to the deposit’s current value, including interest accrued so far.
| Bank | Maximum against the deposit |
|---|---|
| Bank of Baroda | 95% |
| SBI, ICICI, Yes Bank, PNB, Canara Bank | 90% |
| Axis Bank, Kotak Mahindra | 85% |
The gap between the loan and the deposit is the bank’s margin. The buffer that keeps the security worth more than the debt as interest accrues on the loan. It is not negotiable and it is why no bank lends 100%.
Two limits sit underneath the percentage. A minimum, which at SBI is ₹5,000 for an overdraft applied for online. And a maximum, ₹5 crore online at SBI, with larger facilities arranged at a branch.
Interest rate and charges
Banks price a loan against a deposit at a spread over the rate that deposit is earning, typically 0.5% to 2%. SBI charges exactly 1%. So a deposit paying 7% supports borrowing at around 8%, and the deposit keeps paying you 7% throughout. The real cost of the money is the 1% spread, not the 8%.
That last point is the one most explanations miss. You are not paying 8% to borrow. You are paying 8% while simultaneously being paid 7% on the same money, so the net cost of the facility is close to the spread alone.
Compare the alternatives on ₹2 lakh for six months:
| Borrowing option | Rate | Interest for 6 months |
|---|---|---|
| Loan against your FD | About 8% | About ₹8,000 |
| Personal loan | 11% to 24% | ₹11,000 to ₹24,000 |
| Credit card revolving balance | 30% to 45% | ₹30,000 to ₹45,000 |
Most banks charge no processing fee and no prepayment penalty, so repaying early costs nothing beyond the interest already run up. Check both before signing. A fee changes the arithmetic on a small, short facility.
Borrow against it, or break it?
Breaking a deposit costs you twice: the rate drops to the one applicable for the period actually completed, and a penalty of 0.5% to 1% comes off that. Both apply to the whole deposit and to interest already accrued. A loan costs a spread on the amount borrowed, for the months you borrow it.
Worked, on a real shape of problem.
You hold ₹5,00,000 in a three-year deposit at 7%, opened 18 months ago. You need ₹2,00,000 for six months.
Break it. The 18-month rate is 6.5%, less a 1% penalty, so the deposit is re-rated to 5.5% for the period it actually ran. Interest earned falls from about ₹54,850 to about ₹42,700. ₹12,157 forfeited, on interest you had already accrued. The remaining 18 months at 7% are gone too.
Borrow against it. ₹2,00,000 at 8% for six months costs ₹8,000. The deposit is untouched, keeps paying 7% on the full ₹5,00,000, and reaches maturity at about ₹6,15,720 as planned.
₹8,000 against ₹12,157, and the deposit survives. The loan is cheaper on cost alone, and the gap widens the longer the deposit has already run, because breaking it forfeits more accrued interest each month.
Where breaking wins: when you need most of the deposit rather than a slice of it, when you will not repay inside the remaining term, or when the deposit is close to maturity anyway and the penalty is small against the interest left to earn.
Which fixed deposits can be used as security?
Ordinary, senior citizen, cumulative, non-cumulative, NRE and NRO fixed deposits can all be pledged. A five-year tax-saving fixed deposit cannot, the lock-in under Section 123, formerly Section 80C, bars pledging, loans and premature withdrawal for the full term, with no exceptions. How that deduction works is covered in the income tax section.
That is worth knowing before you open one rather than after. A tax-saving deposit is the least liquid product a bank sells: no loan, no early exit, five years, no way out.
Two other cases to check with the bank:
A deposit held jointly. Most banks require every holder to sign the pledge, whatever the operating mandate on the deposit itself.
A deposit in someone else’s name. Some banks allow a third-party pledge, where you borrow against a deposit held by a relative who consents. Practice varies considerably and many banks will not do it at all.
For NRE and NRO deposits the facility exists, but the loan proceeds carry end-use restrictions under RBI rules. Confirm the permitted uses with the bank before applying. The deposit itself stays insured while it is pledged DICGC’s FAQ sets out what the cover includes).
Loan against a recurring deposit
Banks lend against a recurring deposit on the same terms as a fixed deposit, once the account has run a few months. Usually 80% to 90% of the balance built up so far, at roughly 1% to 2% above the deposit rate. The instalments continue, the deposit keeps its contracted rate, and the lien lifts when the loan is repaid.
The one difference is what the security is worth. A fixed deposit has its full value from day one, so the sanctioned amount is known at the outset. A recurring deposit grows each month, so the limit is set against the balance at the time of application, and some banks review it upward as the balance builds.
For an RD holder the case for borrowing rather than closing is even stronger than for an FD. Premature closure of a [recurring deposit](/recurring-deposits/) re-rates the interest on every instalment paid in so far, and a post office RD is recomputed at the savings account rate. A far heavier loss than a bank’s 0.5% to 1%.
Does it affect your credit score?
Yes. A loan against a fixed deposit is reported to the credit bureaus like any other loan, and your repayment record on it affects your score, a default damages it. What is different is the approval: a credit score is usually not required to be sanctioned, because the deposit is the security.
Those two facts get conflated constantly, including on pages that rank for this term. Not needing a good score to *get* the loan does not mean the loan is invisible afterwards.
The practical consequences run both ways.
It can help. Repaid on time, it adds a secured loan to your credit mix and a run of on-time payments to your history. For someone with a thin file it is one of the lower-risk ways to build one.
It can hurt. Missed payments are reported. And because recovery is automatic. The bank simply takes the money from the deposit it already holds. People assume a default is consequence-free. It is not. The default is still recorded, and it still follows you to the next lender.
The loan also adds to your total outstanding debt, which lenders look at when assessing a later application.
What happens if you don't repay
The bank recovers from the deposit it holds under lien. It can set the loan off against the deposit at any point once you default, and it will do so automatically when the deposit matures if anything is still outstanding. You receive whatever is left after the loan and accrued interest are deducted.
There is no recovery process, no negotiation and no notice period in the way an unsecured default involves one. The money is already with the lender.
Two consequences beyond losing the deposit. The default is reported to the bureaus as set out above. And the deposit is broken to settle the loan, which means the premature closure penalty applies on top. You end up paying the cost you took the loan to avoid.
How to apply
If the deposit is with the bank you are borrowing from, most banks let you apply through net banking or the app and disburse the same day. No fresh KYC, no income proof and no documents beyond the deposit itself, because the bank already holds everything it needs.
Online, with Your Existing Bank
Log in, find the loan or overdraft against deposit option, select the deposit, choose the amount within the sanctioned limit, accept the terms and confirm. The lien is applied and the funds credited, usually within minutes.
At a Branch, or with a Deposit Elsewhere
A loan application form, the deposit receipt, a signed lien or pledge letter, and KYC if you are not already a customer. Every holder signs on a joint deposit. Turnaround is typically the same day or the next.
Three Things to Settle Before You Sign
Take the overdraft if the amount you need is uncertain. You pay only for what you draw.
Most banks charge nothing for either. Confirm yours does not.
If the loan is still outstanding, the deposit is applied against it automatically.
Frequently Asked Questions
Up to 90% of the deposit value at most banks. 95% at Bank of Baroda, 85% at Axis and Kotak. The percentage applies to the deposit’s current value including interest accrued to date. The gap is the bank’s margin and is not negotiable.
Typically 0.5% to 2% above the rate your own deposit is earning; SBI charges exactly 1%. Because the deposit keeps paying you throughout, the real cost of the money is the spread, not the headline rate.
Usually, for a short need. On a ₹5 lakh three-year deposit at 7% held for 18 months, borrowing ₹2 lakh for six months costs about ₹8,000. Breaking it forfeits about ₹12,157 of accrued interest and ends the deposit. Breaking wins only if you need most of the money, cannot repay inside the term, or the deposit is nearly mature.
No. A five-year tax-saving fixed deposit cannot be pledged, borrowed against or withdrawn early for the whole of its lock-in. It is the least liquid deposit a bank offers.
Yes. It is reported to the bureaus and your repayment record affects your score, with a default damaging it. A credit score is usually not required to be approved, because the deposit is the security, but that is about approval rather than reporting.
A loan gives you the whole amount at once and charges interest on all of it from day one. An overdraft gives you a limit and charges interest only on what you draw, for the days you draw it. For an uncertain requirement the overdraft is usually cheaper.
Yes, on similar terms. Typically 80% to 90% of the balance built up so far, once the account has run a few months. The instalments continue and the deposit keeps its contracted rate.
The bank recovers from the deposit it holds under lien, automatically at maturity if the loan is still outstanding. The default is still reported to the bureaus, and breaking the deposit to settle triggers the premature closure penalty as well.
Most banks charge none, and no prepayment penalty either. SBI charges zero on both. Confirm with your own bank, because a fee changes the arithmetic on a small or short facility.
Never beyond the deposit’s own maturity. At SBI a demand loan runs to the remaining deposit term or 120 months, whichever is earlier; an overdraft caps at five years or the remaining term, whichever is earlier.
CLOSING
Loan-to-value percentages, spreads and fees are set by each bank and change without notice. The figures here reflect published terms at the date above and should be confirmed with your own lender.
Dhanvantri Capital Services Private Limited, known as Dhanvantree, is an AMFI-registered mutual fund and SIF distributor (ARN-194216), Connaught Place, New Delhi. We are not a bank or a lender and do not arrange loans against deposits.
Disclaimer: The views expressed here are of the author and do not reflect those of Dhanvantree. Mutual funds are subject to market risks, please read the scheme documents carefully before investing.