A loan against an FD lets you borrow money from your bank using your fixed deposit as security, so the deposit stays intact and keeps earning interest. For most Indian savers, it is one of the cheapest ways to raise cash quickly, because the bank already holds your money as collateral. But cheap doesn’t always mean smart. In this guide, we break down current loan-against-FD interest rates, borrowing limits, and the real cost compared with premature withdrawal, so you can decide which route actually saves you money.
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How Does a Loan Against FD Work?
You pledge your existing FD with the bank, and the bank lends you a percentage of its value, usually as a loan or an overdraft (OD). Your FD continues to earn its contracted interest. You pay interest only on the amount you actually use, and the loan has to be cleared within the FD’s tenure. Because the loan is secured, paperwork is minimal,, and approval often comes within hours. Many banks also let you set it up through net banking or the mobile app.
Loan Against FD Interest Rates and Limits in 2026
The loan rate is not a fixed number. It is your FD rate plus a margin. Public sources put SBI at roughly 0.5-1% above the FD rate and HDFC Bank and ICICI Bank at roughly 1-2% above. Margins can differ by deposit type, so confirm with your bank.
| Bank | Typical loan-to-value | Typical rate over your FD rate | Notes |
| SBI | Up to 90% | ~0.5%–1% | Online OD: ₹5,000 minimum, up to ₹5 crore |
| HDFC Bank | Up to 90% | ~1%–2% | Offered as an overdraft |
| ICICI Bank | Up to 90% | ~1%–2% | Also available on NRE/NRO/FCNR deposits |
Indicative figures from third-party sources; check the bank’s own page for the final word.
Your FD rate also sets your loan cost. SBI’s top FD rate is 6.45% [1] on its 444-day scheme, while ICICI Bank’s highest FD rate for the general public is 6.50% p.a., available on tenors from 3 years 1 day to 10 years (for deposits below ₹3 crore). The RBI has held the repo rate at 5.25% through its August 2026 review. The next policy meeting runs 5-7 October, so it’s worth checking the outcome before you lock in a new FD.
Learn More
- RBI Repo Rate Hike 2026: Bond Yields Surge to 7.24% as RBI Turns Hawkish
- Joint FD Rules: Either-or-Survivor vs. Former-or-Survivor & Tax Implications
- Beyond the Repo Rate Hike: What the RBI’s ‘Calibrated Tightening’ Means for Your Wallet
Loan Against FD vs Breaking Your FD: The Real Cost
Here’s the key idea: when you borrow against your FD, you don’t pay the full loan rate. Your FD keeps earning, so your net cost is only the margin.
Say you hold a ₹10 lakh FD at 6.5% and need ₹5 lakh for six months. At a 1% margin, your loan costs 7.5%. Your real cost is the 1% spread, about ₹2,500 for six months. Now compare breaking it. Banks typically cut the rate by 0.5-1% on premature withdrawal, and that cut applies to the whole deposit, not just the ₹5 lakh you needed. On ₹10 lakh held for a year, a 1% penalty alone is about ₹10,000. You also lose the 6.5% lock-in if rates fall.
When a Loan Against FD Beats Breaking the FD
Borrowing usually wins when:
- The need is short-term. A hospital deposit, tax payment, or a gap before a bonus or property sale lands.
- You need only part of the money. Why break ₹10 lakh for ₹3 lakh?
- The FD is nearing a useful milestone. A few months before the tenure ends, or while you hold a high rate you can’t easily replace.
- You want to protect your rate. If market FD rates have drifted lower since you booked, breaking the FD means reinvesting at a worse rate.
- You’d rather avoid a personal loan. Unsecured loans typically cost far more than an FD-backed one.
When Breaking Your FD Is the Better Move
A loan isn’t automatically right. Breaking may be better when:
- You need the full amount for a long time. A multi-year need means years of margin cost on top of your own deposit.
- The FD is almost at maturity. The penalty on a few remaining weeks may be trivial.
- Your FD rate is very low. The margin is the same, but the savings over a personal loan shrink, and a better-paying product may suit you more.
- You may not repay. If you default, the bank can simply adjust the loan against your FD, and you lose the deposit anyway.
Tax and Fine-Print Points Experienced Savers Miss
FD interest is taxable whether you borrow or not. From 1 April 2026, TDS on bank interest falls under Section 393 of the Income-tax Act, 2025, with thresholds of ₹50,000 for most people and ₹1 lakh for senior citizens. The threshold is checked bank-wise, not branch-wise. Interest you pay on an FD-backed loan taken for personal use generally isn’t deductible, so don’t count on a tax offset.
Also check:
- Processing fees and penalty rates (some banks charge a penalty rate if you don’t repay on time)
- Whether the loan tenure can exceed the FD tenure (it usually can’t)
- Whether renewal or auto-closure rules affect the pledge
Bottom Line
If you need money for a few months or a fraction of your deposit, a loan against FD is usually the cheaper, cleaner option because your deposit keeps compounding while you pay only a small margin. If you need the whole sum for the long haul, or the FD is close to maturity, closing it can be simpler. Run the numbers on your own deposit: FD rate, margin, amount and duration. That one calculation decides it.
Frequently Asked Questions
A loan against FD allows you to borrow money by pledging your fixed deposit as security. The FD generally continues to earn interest while you use the loan or overdraft facility.
Banks typically allow borrowing up to a specified percentage of the FD value, often around 75% to 90%, depending on the bank, deposit type and facility. The exact limit should be checked with the lender.
The rate is usually linked to the interest rate on the pledged FD, with the bank charging an additional spread. The exact spread varies by bank and loan product.
It can be. Since the FD acts as collateral, the interest rate on an FD-backed loan is generally lower than that on an unsecured personal loan. The actual difference depends on the bank and prevailing rates.
Generally, yes. The pledged FD continues to earn interest according to its original terms unless the deposit is closed prematurely.
Generally, yes. Banks may allow early repayment, although the terms and any applicable charges depend on the loan product.
Usually, you cannot freely close or withdraw the pledged FD while the bank’s lien remains. The outstanding liability generally needs to be settled or otherwise dealt with under the bank’s terms.
Sources
Disclaimer
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