What is Loan against Fixed Deposit
Loan against FD is a facility forwarded to investors of fixed deposit accounts. As per this facility, depositors are given the loan of up to a certain percentage of the deposit amount (85% in Axis Bank). This amount is the initial investment made by the depositor, i.e. the principal amount. The associated certificate of FD is kept with the bank until the loan amount is not repaid. In case of non-payment of the loan, the bank reserves the right to recover the same from the FD.
However, the FD account shall continue to earn interest until maturity, provided the repayment is done in time.
For example, if someone has deposited Rs. 1 lakh in an FD, he/she can demand a loan of up to Rs. 85,000 (here, 85%). Here, the FD certificate is kept as a lien or security.