Loan against a fixed deposit: how it works and what it costs

Banks lend against your own fixed deposit (FD) without breaking it. The FD stays in your name and keeps earning its rate, and you pay interest on the loan. Whether that costs less than breaking the FD depends on the amount, the time and both rates. The worked example below puts rupees on both sides.

What is a loan against a fixed deposit?

A loan against an FD is a loan for which your deposit is the security. The bank places a lien on the FD. That means it marks the deposit and holds it as security, so you cannot break it while the loan is open. The bank then lends you part of the deposit's value.

The FD is not closed. It keeps running at the rate you booked it at. Breaking the FD early is a premature withdrawal, and that is different: the bank re-prices the deposit to the shorter period it actually ran. A loan is not a withdrawal.

How much can you borrow against an FD, and at what rate?

Each bank sets its own share and rate. RBI leaves a bank's advance against its own depositor's deposit outside its benchmark-pricing rules for loans. The bank prices it by its own policy.

SBI is one example, and its terms are SBI's alone. On its YONO app, SBI offers an overdraft, a limit you draw on as needed, of up to 90% of the FD's value. The rate is 1 percentage point above the FD's rate, charged on a daily reducing balance. SBI shows zero processing charge and no prepayment penalty (SBI's page, updated 21 May 2025). The minimum is ₹5,000.

At an SBI branch, the loan comes with a margin. A margin is the part of the FD the bank will not lend against. SBI's fixed deposit page (updated 1 December 2025) shows a margin of 10% for an FD with more than 36 and up to 60 months left. For more than 60 months left, it is 15%.

A deposit with an NBFC (non-banking financial company) works under a different rule. Corporate fixed deposits explains these deposits. An NBFC cannot lend against a deposit in its first three months. After that, the NBFC may lend up to 75% of the deposit, at two percentage points above the rate the deposit pays. On a ₹2,00,000 deposit paying an assumed 8%, that is at most ₹1,50,000, at 10%.

RBI tells banks not to lend against deposits held with other banks. You can borrow only against an FD with the bank that holds it.

Loan or overdraft against an FD: what is the difference?

An overdraft lets you draw money up to a limit, and you pay interest only on what you use. A loan pays out a fixed amount at once.

SBI's YONO facility is an overdraft. Its page says interest is charged on a daily reducing balance, so as you put money back, the interest base falls.

Is a loan against an FD cheaper than breaking it?

It depends on the amount, the time and both rates. The FD keeps earning while the loan costs interest only on the money you use, but the loan has its own cost.

Here is one example. A 48-year-old runs a small tailoring unit. The owner holds a bank FD of ₹5,00,000 for three years at an assumed 7% a year, and one year has run. A large customer will pay in six months, and ₹1,50,000 is needed for staff wages until then (182 days).

Borrow. The owner takes an overdraft on SBI's YONO terms: 1 percentage point above the FD's rate, so 8% on the balance used. ₹1,50,000 is well inside the 90% limit of ₹4,50,000. The interest is ₹1,50,000 × 8% × 182 ÷ 365 = ₹5,984, with no processing fee or prepayment penalty at SBI. Meanwhile the whole ₹5,00,000 keeps earning at the assumed 7%, which is ₹17,452 over those 182 days.

Break. The owner breaks the whole FD after exactly one year. Take the bank's one-year rate as an assumed 6.5%. SBI's penalty for deposits up to ₹5 lakh is 0.50 percentage point (SBI's page, updated 14 September 2026). The year is then paid at 6.0%, which is ₹30,000 instead of ₹35,000 at 7%. The break costs ₹5,000 of interest already earned. The ₹3,50,000 not needed must also be deposited again at whatever rate is on offer then.

On interest alone, the two are close: ₹5,984 against ₹5,000. The difference is what is left afterwards. Borrowing keeps the full ₹5,00,000 at the assumed 7% for the remaining two years. Breaking ends it, and the money must find a new rate. Change the facts and the result changes:

• A larger loan for a longer time adds more loan interest.
• A loan rate further above the FD rate raises the loan's cost.
• A bank that lets you break only part of the FD changes the break side of the sum.

To test your own numbers, use the fixed deposit calculator. The rules on penalties are in how to avoid the penalty on premature withdrawal of a fixed deposit.

Which FDs can't you borrow against?

A tax-saving FD cannot be pledged at all. The scheme says the term deposit shall not be pledged to secure a loan or as security to any other asset. Read more in what is a tax-saving fixed deposit.

An NBFC cannot lend against its own deposit in the first three months.

A post office time deposit can be pledged as security under its rules. Post office savings schemes covers the scheme.

Does a loan against an FD show on your credit report?

Yes. A loan against your FD is reported to the credit bureaus like any other loan, so repaying it on time helps your credit record. RBI requires a commercial bank to send data on its borrowers to all credit information companies (the credit bureaus) four times a month. Breaking an FD is not borrowing and does not touch your credit score.

If you do not repay, the FD is the security for the loan. At SBI, that security is a lien on the underlying deposit.

How do you apply for a loan against an FD?

Apply with the bank that holds the FD. Use its app or net banking where it offers the facility (SBI offers it on YONO), or go to the branch.

If you hold mutual funds as well as FDs, Koshex arranges loans against mutual funds. See get a loan against mutual funds.

Koshex also sells fixed deposits, bank and corporate, from ₹10,000. See fixed deposits.