Digital banking has made it possible to shop online, transfer money, repay loans and access investments without visiting a bank branch. This convenience has also introduced financial terms that customers need to understand before using modern banking services.
Two such facilities are card tokenisation and loans against fixed deposits. Although they serve completely different purposes, both can make financial transactions more convenient. Tokenisation helps protect debit and credit card details during digital payments, while a loan against FD provides access to funds without immediately closing a fixed deposit.
Here is how these two banking facilities work, along with their benefits, limitations and important safety considerations.
What Is Card Tokenisation?
Card tokenisation is a security process that replaces sensitive card information with a unique alternative code called a token.
When a customer pays online using a debit or credit card, the transaction may require information such as the card number and expiry date. Saving these details on multiple shopping websites can increase the potential impact of a merchant data breach.
With tokenisation, the merchant stores a token instead of the customer’s actual card number. This token is used to process future payments on the same platform under the applicable conditions.
According to the Reserve Bank of India, a tokenised card transaction is considered safer because the customer’s actual card details are not shared with the merchant while the payment is being processed. The framework is explained in the RBI’s official tokenisation FAQs.
Is a Token the Same as a Card Number?
No. A token acts as a substitute for the actual card details, but it is not the original card number.
Under the card-on-file framework, a token is linked to a specific combination involving the card, token requester and merchant. A token created for one shopping platform cannot ordinarily be treated as a universal replacement for the card across every website.
The token is generated by an authorised card network or card issuer working as a Token Service Provider. Merchants do not independently create a valid payment token from the card number.
Only the authorised Token Service Provider can convert the token back into the corresponding card credentials when required for transaction processing. This process is called de-tokenisation.
How Does Card Tokenisation Work?
When customers save a card on a participating website or app, they may be offered an option such as “securely save card” or “tokenise card.”
The process generally works as follows:
- The customer enters the card number, expiry date and other required information.
- The merchant or payment platform sends a tokenisation request through the authorised payment system.
- The cardholder provides explicit consent.
- The issuing bank validates the request using an additional factor of authentication, usually an OTP.
- An authorised Token Service Provider creates a unique token.
- The merchant saves the token instead of storing the complete card details.
- The token is used to initiate future payments on that merchant platform.
Tokenisation is provided without a separate charge to the cardholder under the RBI framework.
Why Is Tokenisation Safer?
The principal benefit is that the actual card number is not stored with the merchant. If the merchant’s system suffers a data breach, criminals may obtain a token rather than the underlying card credentials.
Because the token is linked to a defined merchant or token requester combination, its usefulness outside that environment is limited.
Tokenisation can also make repeat purchases more convenient. Customers do not have to type the complete card number every time they shop on a platform where the token has been saved.
RBI requires tokenisation to be performed with the customer’s explicit consent and Additional Factor of Authentication. It should not be carried out automatically without the cardholder’s approval.
Does Tokenisation Prevent Every Card Fraud?
No security feature can eliminate every type of fraud. Tokenisation reduces the exposure of stored card details, but it cannot protect a customer who voluntarily shares confidential information with a criminal.
Fraud can still occur if a person:
- Shares an OTP, card PIN or CVV with a caller
- Approves an unauthorised transaction
- Installs a remote-access or screen-sharing application
- Uses a fake banking or shopping website
- Responds to a phishing message
- Fails to report a lost card promptly
Customers should never disclose an OTP, PIN, CVV or banking password. Banks and card networks do not ask customers to reveal these credentials over a phone call or message.
Can a Saved Token Be Removed?
Customers can generally ask the merchant or token requester to delete or de-register a token. Card issuers may also provide facilities to view or manage the merchants with which a card has been saved in tokenised form.
Deleting a token from one merchant does not cancel the physical card or automatically remove separate tokens saved with other merchants. Each token relationship may need to be managed individually.
What Is a Loan Against Fixed Deposit?
A loan against FD is a secured borrowing facility in which a bank marks a lien on the customer’s fixed deposit and provides a loan or overdraft against it.
This facility can help a depositor meet a temporary financial need without prematurely closing the FD. The deposit generally continues under its original terms, while the customer pays interest on the money borrowed.
The fixed deposit acts as security for the bank. Because the lender already controls the underlying deposit, the interest rate may be lower than the rate charged on an unsecured personal loan.
How Much Can Be Borrowed Against an FD?
The amount available depends on the bank, deposit value, remaining tenure, depositor category and type of fixed deposit.
Some banks may lend a substantial percentage of the FD value, but there is no single 75%, 90% or 95% limit applicable to every institution and customer. The margin maintained by the bank can vary.
For example, if a bank permits borrowing of up to 90% against a ₹5 lakh deposit, the maximum facility may be ₹4.5 lakh. This is only an illustration and not a guaranteed sanction.
Certain deposits may be ineligible, including some tax-saving FDs, deposits already pledged elsewhere or accounts subject to specific restrictions.
How Is Interest Charged on an FD-Backed Loan?
Banks commonly price these facilities at a margin above the interest rate earned by the underlying fixed deposit. The extra rate may vary across lenders and products.
Suppose an FD earns 6.5% annually and the bank charges two percentage points above that rate. The borrowing rate would be 8.5% a year. Actual pricing must be confirmed with the bank before applying.
Under an overdraft facility, interest may be charged only on the amount used and for the period it remains outstanding. A conventional loan may follow an instalment-based repayment schedule.
Customers should also examine processing fees, documentation charges, late-payment penalties and foreclosure conditions.
Does the FD Continue Earning Interest?
The fixed deposit generally continues to earn interest according to its existing terms while it remains pledged to the bank. However, the customer cannot freely close, transfer or use the deposit until the loan obligation and lien are cleared.
If the borrower fails to repay, the bank may adjust the outstanding loan and interest against the fixed deposit. The customer could therefore lose part or all of the deposit proceeds.
If the FD reaches maturity before the borrowing has been repaid, the bank may use the maturity amount to settle the dues according to the loan agreement.
Is a Loan Against FD Better Than Breaking the Deposit?
The answer depends on the amount required, how long the money is needed and the cost of borrowing.
Prematurely closing an FD may lead to a lower applicable interest rate and a withdrawal penalty. A loan against the deposit avoids immediate closure but creates an interest expense.
Borrowing may make sense when the financial requirement is temporary and the customer can repay quickly. If the funds are required permanently or repayment capacity is uncertain, closing the deposit could sometimes be less expensive than paying loan interest for an extended period.
Customers should compare both options mathematically before deciding.
Can the Loan Be Obtained Instantly?
Many banks allow eligible customers to request an overdraft or loan against FD through internet banking or a mobile application. Where the FD and customer information are already available in the bank’s system, approval and disbursal may be quick.
However, instant approval is not guaranteed. Joint deposits, deposits opened in a minor’s name, third-party deposits or accounts with incomplete KYC may require additional checks or branch processing.
Important Points to Check Before Borrowing
Before taking a loan against an FD, customers should confirm:
- The maximum eligible loan amount
- The interest rate and how it is calculated
- Processing and other charges
- The repayment period
- Overdraft renewal conditions
- Consequences of delayed repayment
- Treatment of the FD at maturity
- Rules for releasing the lien
- Whether premature repayment attracts a charge
The loan should not be treated as extra income. It is a liability secured by the customer’s own savings.
Final Takeaway
Card tokenisation and loans against fixed deposits address two very different banking needs. Tokenisation improves online-payment security by replacing actual card information with a unique token, reducing the exposure of sensitive credentials at merchant platforms.
A loan against FD allows eligible depositors to access money without immediately breaking their fixed deposit. It may be cheaper than an unsecured personal loan, but interest and repayment obligations still apply.
Customers should use tokenisation alongside basic fraud precautions and compare the full cost of an FD-backed loan with premature deposit closure before borrowing.
Disclaimer: This article is intended for general financial awareness. Tokenisation services, loan eligibility, interest rates and borrowing limits may vary. Customers should check the latest RBI guidance and their bank’s official terms before using either facility.
