Hidden Costs to Watch Before Applying for A Credit Card Against an FD

It’s a simple and quick way to get a card, especially if your credit score is low or you’re just starting your credit journey. You don’t face the same scrutiny as with a regular credit card because your FD acts as the bank’s assurance. But while the application feels easy, the costs that come with it can quietly add up over time.

Annual and Joining Charges You Might Miss

Even though FD-backed credit cards are promoted as “low-risk” or “easy approval” options, many still carry joining or annual fees. These might seem small at first maybe ₹500 or ₹1,000 but they can feel unnecessary if you’re using the card mainly to rebuild credit or manage small expenses.

Some banks waive the fee in the first year, but it returns in the second. Others make it conditional—spend a minimum amount annually, and the fee gets reversed. These conditions sound fair, but if you use the card sparingly, you may end up paying the full amount.

Before applying, check:

• Whether there’s a joining or renewal fee after the first year


• If the waiver depends on spending thresholds


• If taxes are added to the fee (they usually are)

You might assume that since the card is backed by your FD, interest rates will be lower. That’s not always true. FD-backed credit cards often carry the same rates as regular unsecured cards, sometimes up to 3.5% per month if you miss your payment deadline.

Missing or delaying payments doesn’t just lead to interest piling up—it also defeats the purpose of using this card to build or fix your credit score. Late payments can easily undo the benefits you’re hoping to achieve.

To stay safe:

• Always pay at least the total due, not just the minimum amount


• Set up an auto-debit so you never miss a payment


• Remember that paying even a few days late can trigger both interest and penalties

Many people assume that since the credit card is linked to their own FD, they can freely withdraw cash without major fees. In reality, cash withdrawals through ATMs are one of the most expensive transactions you can make on any card.

There’s usually a cash advance fee (a percentage of the withdrawn amount) and daily interest from the date of withdrawal until repayment. The rate doesn’t reduce just because your FD is the security. So, even though it’s technically “your money,” the card treats cash withdrawals like a loan.

You’ll also want to avoid transferring your card balance to another card unless you’ve read the terms carefully. Balance transfer fees can be high, and if you miss a payment, your FD may be affected.

Tax and Processing Costs You Don’t Expect

Beyond the main fees, there are small, often unnoticed costs that add up quietly. Every annual fee, late payment charge, or interest amount typically includes GST. It might not seem like much, but when you add it all up over the course of a year, it can make a significant difference.

Some banks also apply processing or service fees when you open the card against your FD. These could be deducted directly from your deposit or added to your first statement. Always ask for a full breakup of fees before you sign the form or approve the deposit lien.

Impact on Your Fixed Deposit

Your FD is your collateral, and while it continues to earn interest, it’s not entirely free from risk. If you default on your credit card payments, the bank has the right to recover the amount from your FD.

In some cases, they may even break the deposit prematurely, which means you’ll lose a portion of the interest you could have earned. Premature withdrawal penalties vary between banks, but they can lower your total returns from the FD.

Keep these things in mind:

• Your FD stays locked for as long as the card is active


• If you close the card, you may have to wait for the lien to be released


• Premature closure can affect your returns if you ever need funds urgently

It’s surprisingly easy to overlook small purchases or due dates when you’re managing multiple cards or bills. With FD-backed cards, missing the payment or crossing your limit can lead to two separate charges: a late fee and an overlimit fee.

The late fee depends on your outstanding balance and can range from ₹100 to ₹1,000 or more. Overlimit fees apply if you exceed your approved credit limit, even slightly. Both of these affect your credit score and reduce your FD’s protection, as the bank may adjust the lien amount to cover these dues.

So, before using your card, make it a habit to:

• Track your expenses through the bank’s app or SMS alerts


• Set reminders for billing dates


• Keep your usage below 70% of your credit limit

An FD-backed credit card is one of the easiest ways to enter the world of credit or rebuild your credit score after a difficult financial period. The best ones, such as the Kotak811 credit card against FD, make the process quick, digital, and safe. However, even then, it's essential to understand what you're signing up for.

Every hidden cost, no matter how small, affects your overall value from the card. Being aware of them early helps you use the product as intended—to improve your financial standing without incurring unnecessary expenses.

Final Thoughts

When you decide to get a credit card against your FD, you’re already taking a responsible step. You’re not borrowing blindly but building a healthy credit history backed by your own savings. The key is to balance the benefits with awareness of the fine print.

Read every term, ask questions if something feels unclear, and choose a bank that keeps the process simple and transparent. Once you do, you can enjoy the flexibility and confidence that come with a secured credit card without worrying about hidden costs waiting to surprise you later.

T&C Apply. Information present in the article is subject to change. The brand does not endorse any advice shared in the article. Features and benefits mentioned in the article are also subject to change. For the latest updates regarding products, visit the Kotak811 website.

Moneycontrol Journalists are not involved in creation of this article.