Loan Against FD: Borrow ₹4.5 Lakh at 7.5% While Your Deposit Keeps Earning

A loan against FD lets you borrow up to 90% of your fixed deposit at roughly 1–2% above the FD's own rate — SBI charges FD rate + 1% — while the deposit keeps earning interest. With no processing fee and no prepayment penalty, it is usually far cheaper than a personal loan for short-to-medium cash needs. When a sudden cash need lands — a medical bill, a home repair, a family emergency — most people with a fixed deposit reach for the nearest option: break the FD, or take a personal loan. There is a third option that is usually cheaper than both, and your bank already offers it: a loan against your fixed deposit. With this facility, you pledge your FD as collateral, borrow up to 90% of its value, and pay a loan rate only about 1–2 percentage points above your FD rate — while the deposit keeps earning interest. After the RBI's October 7 rate hike took the repo rate to 5.50%, this quiet corner of retail banking deserves a fresh look.

What a loan against FD actually is

A loan against fixed deposit (LAF) is a secured loan where your existing FD is the collateral. The bank places a lien (a legal hold) on the deposit — it stays in your name and keeps earning interest, but you cannot withdraw it until the loan is cleared. The bank offers it in two forms: - Demand loan: the full amount is credited to your account as a lump sum, and you repay it in EMIs over a fixed period. Choose this when you need a specific amount at once. - Overdraft: a credit limit is set against your FD; you draw money as needed, and interest is charged only on the amount used, not the full limit. Ideal for uncertain or staggered cash needs. Because the deposit itself secures the loan, the bank carries almost no default risk. That is why approval is near-instant, documentation is minimal, and your credit history carries far less weight than it does for an unsecured personal loan (reported by The Economic Times, which notes the CIBIL score is not the deciding factor for this facility).

The math that makes it attractive: ₹34,151 cheaper than a personal loan

Take an illustrative example. You hold a ₹5,00,000 FD earning 6.5% per annum, and you need ₹4,50,000 (90% of the FD value) for three years. Loan against FD route (SBI terms): the loan rate is the FD rate plus 1%, i.e. 7.5% per annum. The EMI on ₹4,50,000 at 7.5% for 36 months works out to about ₹13,998 per month, with total interest of roughly ₹53,921. Personal loan route: at an illustrative 12% per annum, the EMI on the same ₹4,50,000 for 36 months is about ₹14,946 per month, with total interest of roughly ₹88,072. The difference: the loan against FD costs about ₹34,151 less in interest (₹88,072 minus ₹53,921). Meanwhile your ₹5,00,000 FD keeps compounding at 6.5% (quarterly) and grows to roughly ₹6,06,704 — earning about ₹1,06,704 while you borrow against it.

Workings: EMI = P × r × (1+r)^n ÷ [(1+r)^n − 1], where P is the principal, r the monthly rate (annual ÷ 12) and n the number of months. For the loan against FD: P = ₹4,50,000, r = 0.075 ÷ 12 = 0.00625, n = 36 → EMI ≈ ₹13,998, total interest ≈ ₹53,921. For the personal loan: r = 0.12 ÷ 12 = 0.01 → EMI ≈ ₹14,946, total interest ≈ ₹88,072. Figures are illustrative and rounded; verify the live rate your bank offers before borrowing.

2026 rates: what the big banks actually charge

Rates for this facility are not fixed — they are set as a spread above the FD's own rate. As of October 2026, the broad pattern across major banks is: - SBI: FD rate + 1%, up to 90% of the deposit value, zero processing fee, no prepayment penalty. Online overdraft from ₹5,000 to ₹5 crore for single holders via YONO/internet banking; branches also serve joint holders with both loan types. - HDFC Bank: FD rate + 2%, up to 90% of the FD value, minimum FD ₹25,000, minimum tenure 6 months 1 day. - ICICI Bank: FD rate + 2%, up to 90% of the deposit value. - Axis Bank: FD rate + 2%, up to 85% of the deposit value. - Yes Bank: FD rate + 1%, up to 90% as overdraft on the FD. (Bank rate spreads as listed by Scripbox's October 2026 rate page; always confirm on your bank's current website before borrowing, as rates and loan-to-value limits can change.) Two features make this genuinely cheap credit. First, SBI charges interest on a daily reducing balance, so the effective cost falls as you repay. Second, there is typically zero processing fee and no prepayment penalty at SBI and most public-sector banks — a personal loan usually takes 1–3% of the amount as a processing fee up front.

Breaking your FD vs borrowing against it

The instinct in a crunch is often to break the FD. That usually costs more than it looks: - Penalty: SBI charges a premature-withdrawal penalty of 0.50% on deposits up to ₹5 lakh and 1% on larger deposits (as per bank disclosures). Private banks have similar penalties. - Lost rate: you forfeit the higher rate you locked in for the longer tenure, and the remaining period is re-rated at the lower, shorter-tenure rate. - Reinvestment risk: if market rates have fallen since you booked the FD, the money you reinvest later earns less. A loan against FD has none of these costs. No breakage penalty, the deposit's interest clock keeps ticking, and you pay interest only for the period the loan is outstanding. As one financial planner quoted by NDTV Profit put it, "for liquidity needs of one to six months, borrowing often works out cheaper than breaking the FD."

The rules and limits you should know

- Margin: you cannot borrow 100% of the FD. SBI keeps a 10% margin for loans up to 5 years and 15% for loans of 5–10 years (so 90% and 85% loan-to-value respectively). - Tenure: the loan tenure cannot exceed the FD's remaining maturity. If the loan is not repaid by then, the bank simply adjusts the dues when the FD matures. - Not everything qualifies: 5-year tax-saving FDs cannot be pledged, and FDs in a minor's name are not eligible (as per bank eligibility pages). - Default consequences: if you do not repay, the bank will encash the FD to recover its dues. Never treat this as free money. - Interest accrual: check whether unpaid interest on the overdraft compounds monthly or quarterly, and read the liquidation conditions in the sanction letter.

When it beats a personal loan — and when it doesn't

Choose the loan against FD when: you already have an FD of a useful size, your need is short-to-medium term, you want the cheapest possible borrowing cost, your credit score is thin or damaged, or you need money within hours — online overdraft disbursal can be near-instant. Choose the personal loan when: you have no FD, you need more than 90% of any one deposit's value, or the loan tenure you need runs well beyond your FD's maturity. It is also the tool when the expense is genuinely larger than any FD-pledge can cover. And a word of caution from financial planners: easy access to cheap credit is also a behavioural trap. Because it feels painless, some borrowers raid the FD-backed facility for lifestyle spending — gadgets, travel, upgrades. If the purpose is discretionary, you are paying interest to buy something you did not need urgently. That was never a good deal, however cheap the rate.

Sources: The Economic Times (SBI loan-against-FD features); NDTV Profit (break-vs-borrow cost comparison); Scripbox (October 2026 bank-wise rate spreads); ClearTax (SBI FD and premature-withdrawal penalty details); Paisabazaar/BuddyLoan (SBI facility terms: up to 90%, zero processing fee, no prepayment penalty); Business Standard, CNBC TV18 (RBI repo rate 5.50%, Oct 7, 2026). This article is for educational purposes only and is not financial advice. Please consult a SEBI-registered investment adviser for personalized guidance. Investments are subject to market risk.