Credit Cards Against Fixed Deposit, or CCaFD, represents a unique fusion in the realm of finance. While credit cards are synonymous with convenient purchasing and access to credit lines, fixed deposits serve as secure savings mechanisms with the added benefit of earning interest. In web article, we will explore the concept of CCaFD, unravel its workings, and assess both its potential advantages and disadvantages.
Understanding Credit Cards Against Fixed Deposit
A Credit Card Against Fixed Deposit is a unique financial product that allows individuals to obtain a credit card by pledging a fixed deposit with a bank or financial institution. In this arrangement, the fixed deposit acts as collateral, securing the credit card issuer against default. The credit limit on the card is typically a percentage of the fixed deposit’s value, often ranging from 80% to 90%.
How CCaFD Works
The process of obtaining a credit card against a fixed deposit is straightforward:
Opening a Fixed Deposit: First, you need to open a fixed deposit account with a bank or financial institution. Your credit limit is determined by the sum you deposit.
Application for a Credit Card: Once your fixed deposit is in place, you can apply for a credit card against it. The bank will assess your creditworthiness and approve the card, taking into account the security provided by the fixed deposit.
Credit Card Usage: You can use the credit card just like any other regular credit card. Your credit limit is determined by the fixed deposit, and you must make timely repayments to maintain a good credit history.
Advantages of Credit Cards Against Fixed Deposit
Easy Approval: CCaFDs are relatively easy to obtain, even for individuals with no credit history or those with poor credit scores. The fixed deposit acts as security for the bank, making approval more accessible.
Builds or Rebuilds Credit: Using a CCaFD responsibly can help you build or rebuild your credit history. Making punctual payments and using your credit card responsibly can have a beneficial effect on your credit score.
Interest on Fixed Deposit: While you use the credit card, the fixed deposit continues to earn interest. This ensures that your money is not stagnant, and you can potentially earn more than the credit card’s annual fees.
No Income Proof Required: CCaFDs may not require proof of income, making them suitable for students, retirees, or individuals with irregular income sources.
Disadvantages of Credit Cards Against Fixed Deposit
Freezing of Fixed Deposit: The fixed deposit you pledge as collateral is typically frozen by the bank. You cannot access these funds until you close the credit card account or meet other conditions specified by the bank.
Low Credit Limit: The credit limit on a CCaFD is limited to the value of the fixed deposit. If you require a higher credit limit, this may not be the best option for you.
Annual Fees: CCaFDs may come with annual fees and charges, reducing the overall benefit of using a secured credit card.
CREDIT CARDS AGAINST FIXED DEPOSIT offer a practical solution for individuals looking to build or rebuild their credit history, particularly when traditional unsecured credit cards are hard to obtain. They are also a viable option for those who want to earn interest on their savings while enjoying the convenience of a credit card.
Before opting for a CCaFD, it’s crucial to compare different offers, understand the terms and conditions, and assess your financial goals. Additionally, consider whether the credit limit and benefits offered align with your requirements. When used responsibly, a CCaFD can be a stepping stone to improving your financial well-being while safeguarding your savings.
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