How a loan against a fixed deposit works
With a loan against a fixed deposit you keep the deposit in place and borrow against it instead of closing it early. The bank holds the deposit as security and lends up to a share of it. The deposit carries on earning its own interest while it is pledged.
The loan rate is usually set a little above the rate the deposit earns, by a margin your lender sets, and the loan cannot normally run longer than the deposit. Because the deposit keeps earning, the real extra cost of borrowing is the part of the loan interest that is above the deposit rate, not the whole of it. The calculator shows that figure as well as the total interest.
The limit, the margin and the rates are each lender's own, so you enter them from your offer. The calculator also shows what the deposit grows to, so you can see both sides of the arrangement.
Worked example
A ₹5,00,000 fixed deposit at 7% a year, with interest added quarterly, grows to ₹6,15,719.66 over 3 years, earning ₹1,15,719.66. If your lender lends up to 90% of the deposit, you can borrow up to ₹4,50,000.00.
Borrowing that ₹4,50,000 for 12 months at 1 point above the deposit rate, which is 8.00% a year, and paying interest only, costs ₹3,000.00 a month and ₹36,000.00 in interest, and you repay ₹4,86,000.00 in all. Of that interest, ₹4,500.00 is above the 7% the deposit earns, and that is the real extra cost.
In equal monthly instalments over 24 months with interest added yearly on the deposit, the payment is ₹20,352.28 a month and the extra cost over the deposit rate is ₹4,806.84. A loan of ₹4,80,000 is ₹30,000.00 above the 90% limit.
As a check on the growth, ₹10,000 at 10% with interest added quarterly grows to ₹13,448.89 in 3 years.
For the repayments on a loan against a deposit with no limit or deposit growth, see the FD loan calculator.
Things to check with your bank
Ask how much of the deposit the bank lends, the margin over the deposit rate, whether the loan is interest only or repaid in instalments, and what happens to the deposit if you do not repay. Some banks can close the deposit to clear the loan. Rules and limits differ between banks and change, so the calculator uses the figures you enter.
To work out the interest on a loan against an FD alone, use the FD against loan interest rate calculator.
Inputs for the fixed deposit loan calculator
Fixed deposit amount
The amount in the deposit that you would pledge as security for the loan.
Rate the fixed deposit earns (per year)
The yearly rate on the deposit. The rate shown is only an example, so enter your own.
Interest on the deposit is added
How often the deposit's interest is added: yearly, half-yearly, quarterly or monthly.
Time left on the fixed deposit
The loan cannot run longer than this. Months are fine, for example 2.5 years.
Most the lender lends against it
The share of the deposit the lender allows you to borrow. Use your lender's figure.
Points the loan costs above the deposit rate
The loan rate is the deposit rate plus this margin. Use your lender's figure.
Loan you want
The amount you want to borrow against the deposit.
Loan term
The months you will borrow for, up to the time left on the deposit.
Loan is repaid
Interest only with the loan at the end, or in equal monthly instalments.
CALCULATOR QUESTIONS
Fixed deposit loan calculator questions
How much can I borrow against a fixed deposit?
Up to a share of the deposit that your bank sets. Enter that share as the most the lender lends.
Does my deposit keep earning interest?
Usually yes while it is pledged, but check your bank's terms. The calculator assumes it does.
What is the real cost of the loan?
The part of the loan interest above the rate the deposit earns, because the deposit's own interest continues.
Can the loan run longer than the deposit?
Not here. The loan term is capped at the time left on the deposit, which is how loans against deposits usually work.