Tokenisation in Banking: Banks are no longer confined to physical branches. With mobile phones and the internet, people can now access services like online payments, card-based shopping, mobile banking, and loans from the comfort of their homes. This shift toward digital banking has introduced several terms that the average person needs to understand.
Specifically, we are discussing ‘Tokenisation’ and ‘Loans against Fixed Deposits (FDs).’ These serve different purposes. Tokenisation safeguards debit and credit card details, while a loan against an FD lets you borrow against your deposited funds when needed.
What is Tokenisation?
Whenever you make an online payment using your debit or credit card on a website or mobile app, specific card details—such as the card number, expiry date, and other essential information—are utilised. Tokenisation means that instead of using your actual card number for every online transaction, you can use a ‘token’ instead.
Benefits of Tokenisation
The most significant benefit is enhanced security. If a merchant or website stores a token, it doesn’t store your actual card number in its system. This helps mitigate the risk of sensitive card information falling into the wrong hands. For instance, if you save your card details on an online shopping website, tokenisation ensures that the website holds a token number rather than your actual card number.
What is the difference between a card number and a token?
Simply put, your actual card number is like the real key to your house—sharing it is unsafe. A token, on the other hand, is like a digital key used specifically for making payments. The system operates on the principle that you don’t need to share your actual card data with every online platform.
Tokenisation can help eliminate online fraud
While tokenisation significantly enhances security, it does not eliminate every type of cyber fraud. If someone calls and asks for your OTP, CVV, PIN, or password, and you share it, tokenisation cannot protect you.
Understanding FDs and Instant Loans
If you hold a Fixed Deposit (FD) with a bank and suddenly need funds, you do not necessarily have to break the FD prematurely; many banks offer loan or overdraft facilities against FDs. In this arrangement, your FD remains with the bank, and you can borrow against its value. This is known as a loan against FD.
How much loan can you get against an FD?
The loan amount depends on the bank’s policy, the type of FD, and other regulations. Typically, banks offer loans covering a portion of the FD’s value—often ranging from 75% to 95%—though these rules vary by bank. For instance, if you have an FD worth ₹5 lakh, you could potentially secure a loan of up to ₹4.5 lakh (90% of the value).
What are the interest rates for FD loans?
A loan against an FD is a type of secured loan because the bank holds the FD as collateral. Consequently, the interest rate is often lower than that of unsecured personal loans. However, the specific rate is determined by the bank and the terms of the loan against the FD.
Getting an instant loan against an FD
Many banks offer online loan facilities against FDs to their existing customers. If your FD details are already in the bank’s records and you meet the eligibility criteria, the process becomes very simple. In some cases, you can apply via internet banking or mobile banking.
Benefits of loans against FDs
Regarding the benefits, taking a loan against an FD reduces the need to prematurely liquidate the deposit. You may secure a lower interest rate than a personal loan, and the application process is generally straightforward. This provides assistance in case of a sudden need for funds, while the interest earned on the FD continues uninterrupted.