Knowing about different credit card options can help you manage your finances. Among the various types of credit cards available in the Indian market, two common types are regular and fixed deposit credit cards. Regular credit cards let you borrow money from the bank for your purchases. They come with benefits like rewards and cashback. However, if you don’t pay off your balance every month, you might face high interest rates. Credit cards against fixed deposits are different. They use the money in your fixed deposit account as security. This means you will have a lower credit limit, but approval is usually easier, and interest rates tend to be lower.
Each type has its advantages and disadvantages. It’s important to know how credit cards work. This article will compare regular credit cards and credit cards linked to fixed deposits so you can make better financial choices.
What is a Regular Credit Card?
A regular credit card lets you borrow money from a bank to make purchases, both in stores and online, up to a certain limit. When you use the card, you’ll need to pay back what you spend by a particular date each month to avoid extra charges. If you don’t pay off the full amount, you will be charged interest, which can add up quickly, leading to debt. Regular credit cards often come with benefits like cashback offers, reward points for your spending, and perks related to travel or shopping. Some cards may also have an annual fee, so it’s important to choose one that fits your needs.
Key Features
- Credit Limit: Each credit card comes with a maximum amount you can borrow, known as a credit limit, which is determined based on your income and credit history. The better your credit score, the higher your credit limit may be.
- Interest Rates: If you don’t pay off your credit card balance in full by the due date, you will accumulate interest charges on the remaining amount. Credit card interest rates can be pretty high, so it’s important to make timely payments to avoid these charges.
- Rewards Programs: Many regular credit cards offer rewards for your spending. You earn points, cash back, or miles for every purchase you make, which can be redeemed for discounts, gift items, or travel benefits.
- Annual Fees: Some credit cards charge an annual fee for the benefits they offer, while others come with no fees. Cards with annual fees often provide more rewards and perks if compared with cards with no fees.
- Grace Period: Regular credit cards often include a grace period, which is the time you have to pay your balance without incurring interest. This period usually lasts between 21 to 25 days after the billing cycle ends.
- Additional Perks: Regular credit cards may come with additional benefits like travel insurance, purchase protection, or access to exclusive events, making them an attractive choice for many users.
Pros and Cons
Pros
- Many cards offer points, cash back, or travel miles for spending.
- They provide a backup in case of unexpected expenses.
- You can use them for various purchases, both online and in stores.
Cons
- It’s easy to overspend and get into debt.
- Some cards charge a yearly fee for benefits, which can add up.
- If you don’t pay your balance in full, you’ll incur high interest.
What is a Credit Card Against Fixed Deposit
A secured credit card is backed by a fixed deposit account at the bank. This means that the amount you can spend on the credit card is linked to the money you have saved. If you don’t pay back what you owe, the bank can take the money from your fixed deposit as a form of security. This type of credit card is great for people who may not have a strong credit history or a good credit score because it lowers the risk for the bank. It allows you to use a credit card while still having security.
Key Features
- Credit Limit: The credit limit is usually set at 80-90% of your fixed deposit amount. This means if you have a fixed deposit of ₹10,000, you could get a credit limit of ₹8,000 to ₹9,000.
- Lower Interest Rates: These cards often come with lower interest rates compared to regular credit cards. This is because your deposit backs the credit card, making it less risky for the lender.
- Interest on Deposit: While you use the credit card, the money in your fixed deposit continues to earn interest. This dual benefit allows you to enjoy the advantages of both borrowing and saving simultaneously.
- Easier Approval Process: Getting approved for a credit card against a fixed deposit is generally easier. Since your deposit secures the card, lenders view it as lower risk, which can lead to quicker approvals.
- No Additional Collateral Needed: You don’t need to provide any other form of collateral as your fixed deposit secures the credit limit.
- Access to Funds: You can use the funds from your fixed deposit even while having a credit card against it. This can be beneficial during emergencies or unexpected expenses.
Pros and Cons
Pros
- Interest rates are usually lower than regular credit cards.
- Your fixed deposit continues to earn interest while you use the card.
- Approval is generally easier if you have a fixed deposit.
Cons
- If you don’t pay back, the bank can take money from your deposit.
- These cards may offer fewer rewards or perks compared to regular credit cards.
- Your credit limit is lower, usually tied to your fixed deposit amount.
Comparing Regular Credit Cards and Credit Cards Against Fixed Deposit
Eligibility and Approval Process
Regular credit cards and credit cards backed by fixed deposits (FD) differ in how you qualify for them. To get a regular credit card, you typically need a good credit score and proof of income. This can make the process slow, especially if your credit history isn’t strong. On the other hand, credit cards against fixed deposits are easier and faster to get. Since your fixed deposit account secures these cards, you can qualify even with a limited or poor credit history. This makes credit cards against FD a good choice for those who might have trouble getting a regular credit card.
Risk and Security
When thinking about risk and security, regular and fixed deposit credit cards work differently. With a regular credit card, you borrow money based on your credit score. If your score is low, you might get higher interest rates or be turned down for the card. There’s no collateral, so if you don’t pay your bill, the bank can charge you interest or fees, which will hurt your credit score. But on the other hand, a credit card backed by a fixed deposit uses your savings as security. If you don’t pay back what you owe, the bank can take money directly from your deposit. This makes these cards less risky for the bank, which means they often have lower interest rates and easier approval.
Fees and Charges
When it comes to fees, regular credit cards usually charge annual fees that can change based on the rewards or travel benefits they offer. If you don’t pay your balance in full each month, you may face high-interest charges on what you owe. In contrast, credit cards tied to fixed deposits often have lower or no annual fees. They also usually have lower interest rates because they are secured by your deposit, which reduces the bank’s risk. However, keep in mind that if you do not pay back what you owe on a fixed deposit credit card, the bank can take money directly from your deposit.
Benefits and Rewards
When comparing regular credit cards and credit cards linked to fixed deposits, there are key differences in benefits and rewards. Regular credit cards offer rewards programs and cashback, making shopping more enjoyable. With these cards, you can earn points for travel, discounts, or cash back on your purchases. On the other hand, credit cards backed by fixed deposits usually have fewer rewards because their main advantage is lower interest rates. With an FD-backed credit card, you get reduced interest on any balance you owe, and you also earn interest on your fixed deposit. While regular credit cards focus on rewards for spending, credit cards linked to FDs offer a safer way to use credit with added financial benefits.
Bottom Line
Choosing between a regular credit card and a credit card linked to a fixed deposit depends on your financial situation, credit history, and spending habits. If you have a good credit score and want perks like rewards or cash back, a regular credit card may be better for you. If your credit score is lower or you prefer a card backed by savings, a credit card linked to a fixed deposit is a good choice.
Before deciding, assess your financial needs. Compare the features, fees, and benefits of different cards. Make sure your final choice fits your overall financial goals. Remember to use your card responsibly to keep your credit profile healthy.