Secured credit cards are issued by banks against fixed deposits (FD). The FD, thus, acts as collateral, unlike other unsecured credit cards where the bank decides one’s credit limit on the basis of their salary, credit history and so on.
Spends on credit cards are like short-term loans that have to be paid back to the bank at a given interest rate. Banks usually do not charge this rate if customers pay the outstanding amount in full every month, on or before the due date. A customer’s credit worthiness is judged on the basis of their credit score and credit history. Banks have an entire process in place to determine whether an individual should get a credit card or not, how much the credit limit should be and what rate of interest to offer them and so on.
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However, banks do not issue credit cards to those who have a poor credit history or credit score.
In such cases, banks offer them secured credit cards.
For a secured card, the bank sets a credit limit according to a percentage of the amount of the FD with the issuing bank. When the card is issued, the banks marks a lien on the FD amount till the card is returned to the bank. Lien is charged by banks on its fixed deposits when an advance is granted on them after keeping the FD as a security. Usually the card’s limit is up to 85 percent of the value of the FD.
Interest Rates on Secured Cards is Lower
Secured cards offer the same benefits as any other credit card. But the biggest advantage they offer is lower interest rates in comparison with regular unsecured credit cards.
For instance, ICICI Bank Instant Platinum Credit Card, which is the bank’s secured credit card, has an annualized percentage rate (APR) of 29.88 percent. Whereas all other ICICI Bank credit cards (unsecured) have an APR of 40.8 percent. [APR is the amount of interest that a customer pay on any money borrowed.] This interest is only payable if the customer misses the due date.
Who should get a Credit Card against Fixed Deposit?
Secured cards are suitable for people who are looking to build their credit score from scratch or those who have a damaged credit score. These kinds of cards are suitable for:
- Individuals with entry-level jobs
- Individuals with a damaged credit score
- Retired people with no regular income
- Individuals to whom banks are not offering unsecured cards
- Individuals who do not have income proof, but need a credit card
Banks offering Credit Cards Against Fixed Deposit
Following is a list of secured credit cards offered by some major banks in India, with their respective minimum FD amounts:
|Bank Name||Secured Credit Card Offered||Minimum FD Amount (in Rs.)||APR (in % p.a.)|
|State Bank of India||SBI Unnati||25,000||30.00%|
|ICICI Bank||ICICI Instant Platinum||20,000||29.88%|
|Bank of Baroda||Assure||25,000||19.20%|
|Axis Bank||Insta Easy Credit Card||20,000||34.49%|
|Andhra Bank||Signature Credit Card||10,000||34.49%|
|Kotak Mahindra Bank||Aqua Gold Credit Card||20,000||35.88%|
|Union Bank of India||Usecure||25,000||15.60%|
- Suitable for people who are into entry-level jobs with relatively lower salaries.
- No income tax return documents or proof is needed by the bank to issue the credit card.
- Getting add-on cards becomes easy if one pays their dues in time.
- Suitable for individuals who want to fix their poor credit score.
- Minimum paperwork is involved as the credit card is issued by the same bank with which the customer has an FD.
- Comparatively lower interest rates are offered on secured cards versus the unsecured counterparts.
- Having a secured credit card is like borrowing your own money. The FD linked with the card no longer remains a liquid asset.
- The bank can take over the FD in case outstanding dues are not paid.
- If one fails to pay their outstanding dues, it hurts their credit score.