Simple Tips To Understand a Lien On Fixed Deposit

Fixed deposits are a popular scheme that helps you grow your savings. In addition to that, they also help you procure a loan during an emergency by acting as collateral. When you take a loan or a credit card against your FD, you should know about the lien on fixed deposit.  

What is the Lien on FD?  

Fixed Deposits (FDs) are also a great way to secure funds in case of emergencies. When you pledge an FD as collateral, it becomes a liened FD meaning you cannot withdraw it before repaying the loan. If you default on payments for a prolonged period, the lender has the legal right to recover dues from the FD amount. 

In case you default on your repayment or credit card bills for a prolonged period (which varies depending on the lender), then your FD will be seized. This is the way that a financial company gets access to dues.  

Remember that a lien marking on fixed deposit does not mean the issuer will break your FD and collect the money. It simply refers to the fact that your FD is pledged against a credit facility. When you pay your outstanding dues, you will get access and ownership of your FD. However, if you are unable to do so, the financial institution has the legal right to collect the dues by accessing the lien amount on the fixed deposit.  

Benefits of Lien on FDs 

Easy Access to Loans or Credit 

A lien on fixed deposit helps you leverage an FD to secure various credit facilities such as personal loans, credit cards or overdrafts. It is a convenient process that allows you to access funds by increasing your eligibility.  

Lower Interest Rates 

As you are pledging your FD as collateral, you may get a lower interest rate on your loan based on the policies of the financial institution.  

Maintaining FD Benefits 

When you can access funds via a loan or a credit card, your FD will continue to generate interest and thrive at its own pace.  

Risks of Lien on FDs 

Restrictions on Access to Funds 

After a lien marking on a fixed deposit, you cannot withdraw the amount until you repay the loan amount. This makes it harder for you to access funds in an emergency.  

Potential Loss of Your FD 

If you fail to repay your loan, then the lender will recover your loan outstanding from your FD amount.  

Impact on Credit Score 

Any sort of repayment failure will reduce your credit score.  

How to Remove Lien on Fixed Deposits?  

The only way to free the lien amount on a fixed deposit is to repay your loan. Thus, you must stay on track with your repayment or pay your credit card bills to get full access to your FD.  

Tips to Avoid Lien 

Here are a few tips to avoid a lien on your fixed deposit: 

• Create an emergency fund and do not use the FD as collateral 

• Increase your credit score to qualify for credit cards or loans without needing an FD as security 

Irrespective of how prepared you are, unexpected situations can put you in peril or financial crunches. This may lead to a situation when your lender can claim the lien. However, using your FD as collateral can help you access credit that you may not be able to get in any other way.  

FAQs on Lien on FD 

How does a lien on a fixed deposit affect loan interest rates?  

When you apply for a loan with your FD as collateral, you may get a lower interest rate on your loan as the lender’s risk is reduced.  

Can I still renew my fixed deposit if there is a lien on it?  

You cannot renew or withdraw your FD while lien is applied on it.  

Can a bank impose a lien on a fixed deposit without my consent?  

A bank proceeds with lien marking on fixed deposits when you offer your FD investment as security.