The Finance Nest

Many people know about fixed deposits. But very few know about a smarter way to use it without breaking it—Loan Against Deposits, in short, LD.

Here’s a story that might sound familiar.

A close friend of mine accumulated Rs 3 lakh in a Bank Fixed Deposit. It did not happen overnight. He started small and diligently contributed every month in recurring deposits and eventually converted it into Fixed Deposit.

However, within one year, his relative was in crisis, and so he broke that FD to help him. The feeling of helping someone was good, but thinking of that tedious process of saving was exhausting for him.

Saving is hard.

Building an FD is a tedious and consistent process, and it’s not as easy as it sounds. And then emergency strikes, breaking this FD, feeling like undoing all that discipline. It’s frustrating, yet too common.

This is where Loan against Deposit (LD) comes in as a powerful yet underutilized solution. 

We prioritize loan payments over savings:

Many people give priority to EMI and loan payments and take them seriously. And savings are easily postponed, or SIPs are skipped. So, when we break our FD for any need, it takes a longer time to accumulate it again. LDs are loans, and the mind treats this loan as a liability and plans accordingly to close it at the earliest. Upon closing the LD, the fixed deposit becomes liability-free.

Quick and hassle-free process:

LDs are 100% secured, where security is the bank’s own fixed deposit. You just need to fill out a 1-page or 2-page application form, and your loan would be processed within minutes. Many banks offer this service online, where you can select your online fixed deposits and create an LD by yourself.

Lowest interest rate:

LD offers the lowest interest rate. You only need to pay 1-2% above your fixed deposit rate. Moreover, you keep on earning interest on your fixed deposits. For example, if you are earning 7% interest on your fixed deposit, and the bank is charging 1.50% extra for the LD, then interest on your LD will be 8.50%. Effective interest rate: LD rate (8.50) – Fixed Deposit rate (7.00) = 1.50% extra, yearly.

Flexible payment options:

You can repay the loan in EMIs or as a lump sum. You can close it before the FD matures or get it renewed by just paying the interest amount. It offers flexibility based on your cash flow.

Helps Build Credit Profile:

Banks prefer to have a credit score of customers while processing any loan, except LD. LD helps you create a credit score, and timely repayment of LD can improve your credit score, unlike breaking an FD, which has no positive impact on credit history.

In times of urgent need, breaking your hard-earned savings can feel like taking two steps back. Loan Against Deposit offers a smarter, disciplined, and cost-effective alternative. It keeps your savings intact, ensures liquidity, and even helps build your creditworthiness. In a world where financial emergencies are unpredictable, LAD can be a powerful tool to stay afloat without undoing your saving efforts. Next time you consider breaking an FD, think again—your money can still work for you while giving you the support you need.