Planning a Loan Against FD? Know the Interest Rates and Hidden Charges First

When you’re facing a cash crunch but have funds locked in a fixed deposit (FD), you don’t necessarily need to break it.

A smarter way to unlock value without penalties is by opting for a loan against fixed deposit. It’s one of the most affordable and low-risk borrowing options out there.

But before you jump in, it’s important to understand the loan against fixed deposit interest rate, and the charges that come with it. Let’s break it down in simple terms.

 

Key Takeaways

• You can borrow up to 90–95% of your FD value as a loan.
• Interest rates on FD loans are typically 1%–2% higher than your FD return.
• It’s a secured loan, so rates are lower than personal loans or credit cards.
• Prepayment penalties are rare and terms are flexible.

What is the loan interest rate?

Before taking any loan, you want to know what it’ll cost you — and interest is the biggest factor.

How do banks decide the rate?

The loan interest rate is directly linked to your FD rate. Most banks add a spread of 1% to 2% over your existing FD return. So, if your FD earns 6.5%, expect a loan rate between 7.5% and 8.5%.

This rate may vary slightly depending on:

• FD tenure and amount
• Lender's policy (bank/NBFC)
• Type of borrower (senior citizens may get better terms)

What is the typical rate in 2025?

As of 2025, interest rates on FD loans across Indian banks and NBFCs generally fall between 7% to 9% per annum, depending on your FD rate and the lending institution.

 Example:

If you have a ₹2,00,000 FD earning 6.75%, your loan interest rate might be around 8%. That means you’d pay ₹16,000 annually on a full withdrawal — but you can also borrow only what you need.

Is the rate fixed or floating?

Most loans against FD have fixed interest rates. This is a huge plus when interest rates are rising in the economy — your loan EMI remains stable.

How is interest calculated?

• In term loans, interest is charged on the total loan amount, just like a regular personal loan.
• In overdraft arrangements, you pay interest only on the amount you withdraw — not the full sanctioned limit.

For example, if you’re approved for ₹1,00,000 but use only ₹30,000, you’re charged interest just on ₹30,000.

What charges should you expect?

Even though FD loans are low-cost, it’s wise to check for hidden fees.

Are there processing fees?

Yes, most banks and NBFCs charge a small processing fee, typically:

• ₹500–₹1000 flat
• Or around 0.5% of the loan amount

Some lenders waive this fee for premium customers or as part of offers.

What about documentation charges?

• Usually negligible if your KYC is already updated.
• Additional charges may apply if the FD is in joint name or linked to another branch.

Is there a prepayment penalty?

Generally, no. Since this is a secured loan, banks don’t discourage early repayment. Still, double-check your lender’s policy.

Any annual renewal or maintenance fees?

If your FD loan is structured as an overdraft, there may be:

• Annual maintenance charges (₹250–₹500)
• Renewal documentation after 12 months

Not applicable for one-time term loans.

How does it compare to other loans?

A loan against FD often comes out as the winner — here’s why.

Lower than personal loan rates

Personal loans typically come with interest rates of 11%–24% depending on your credit score.

In contrast, FD loans are usually 7%–9%, since they are secured against your own deposit.

Better than credit card interest

Credit card EMIs or unpaid balances can attract interest up to 36% annually.

FD loans save you from this debt trap while keeping your investment intact.

Ideal for short-term emergencies

Need quick cash for:

• Medical treatment?
• Child’s tuition?
• Business expenses?

You can borrow just what you need — like ₹50,000 or ₹1,00,000 — without affecting your FD returns.

Does your FD get affected?

No. The best part is — your FD stays untouched. It keeps earning interest even while backing your loan.

Conclusion

A loan against fixed deposit is one of the most efficient ways to handle short-term cash needs without disrupting your long-term savings.

With low interest rates, minimal charges, and flexible repayment, it’s a win-win for financially responsible borrowers.

So the next time you're considering breaking your FD for cash, ask yourself — “Why break it when you can borrow against it at a lower cost?”