Credit cards can be confusing, especially if you are new to using them. One type that often stumps customers is FD (fixed deposit) credit cards. How exactly are these different from regular credit cards? And most importantly, which one is better suited for your needs? This blog post breaks down the key differences and benefits to help you make an informed decision.
What is an FD Credit Card?
A Fixed Deposit (FD) Credit Card means your credit card is connected to your Fixed Deposit in the bank. So, the card is “secured” by your FD. FD credit cards need:
- Collateral: To get an FD credit card, you must make a fixed deposit with the bank as collateral or security.
- Credit Limit: Your credit limit is derived as a percentage of the fixed deposit amount. This percentage varies across banks but is usually between 75% to 90% of the FD value.
- Lower Risk for Lender: Offering cards against FDs lowers banks’ risks as the deposit is a financial cushion. Banks can recover dues by breaking the fixed deposit in case of payment issues.
The target audience for FD credit cards is clear, they help first-time borrowers with no existing credit history establish their credentials. They also help people with low incomes or unstable finances obtain credit facilities.
What is a Regular Unsecured Credit Card?
On the other hand, regular credit cards do not require any security deposit or collateral. Card issuers rely on other qualifying criteria before approving applications. These include:
- Income Documents: Banks verify income proofs to ascertain repayment capacity based on monthly earnings. Employed cardholders must produce salary slips or bank statements. Self-employed individuals must provide the last 2 years’ tax returns, profit and loss statements, etc.
- Credit History and Score: Your past repayment record and credit score are checked across lending platforms like credit bureaus to analyse credit behaviour. Timely repayments and controlled credit usage contribute to a high score that signifies lower lending risk.
Once banks have assessed income stability and credit scores, an unsecured card is issued up to a pre-approved limit. The higher risks in offering unbacked facilities translate to more stringent applicant scrutiny in the case of regular cards.
Differentiating Between FD and Regular Unsecured Credit Cards
To know which credit card would suit you better, you need to understand the differences between an FD and a regular unsecured credit card:
| Feature | FD Credit Card | Regular Unsecured Credit Card |
| Security Requirement | It requires a fixed deposit as a security | In regular unsecured credit cards, no security deposit is needed |
| Eligibility | FD credit card is easier to get, even with a low or no credit score | It requires a good credit score and income proof. |
| Credit Limit | Usually, 75%-90% of the FD amount | Based on income and credit history |
| Risk for the Bank | FD credit cards have low risks (since FD is used as security) | Regular unsecured credit cards have higher risks (as there is no security) |
| Interest Rates | The interest rates of FD credit cards are generally lower than regular credit cards | It can be high, depending on the credit score |
| Best For | FD crest cards are best for people with no credit history or low credit score | It is best for people with stable income and a good credit history |
Which Option is Better for you?
If you are new to credit cards or have a low credit score, go for an FD credit card. Attaching your fixed deposit allows banks to give you a card more easily. Use the FD card carefully to build your score over time. If you already have a good credit score and stable income, apply for a regular credit card.
Your chances of approval are higher. With no deposit linked, regular cards offer greater spending flexibility and more reward points. The choice depends on your income stability and current credit health. New credit users find FD cards beneficial for a start. Those with good credit profiles get more options with regular unsecured cards. Pick what works best for your money situation.
Conclusion
While FD credit cards assure easier approvals, regular unsecured variants offer higher flexibility and spending power. New-to-credit customers or customers with unstable credit history can initiate their journey with FD-linked cards. Once they gain experience and credibility, they can request upgrades to regular cards later. Professionals with established repayment track records and healthy bank balances are better positioned for unbacked credit cards without opening deposits.