Is My Fixed Deposit Locked During the Loan Tenure?

No, your fixed deposit (FD) is not entirely ""locked"" during the loan tenure, but its primary purpose shifts to serving as collateral for the loan. When you take a loan against your FD, the financial institution places a lien on the FD. This means the bank can hold or secure the deposit against the loan amount until it is fully repaid.

During this period, you cannot withdraw or close the fixed deposit prematurely without first settling the loan. However, the FD continues to earn interest as per the agreed-upon rate at the time of deposit. In most cases, the interest earned on the FD is higher than the interest charged on the loan, making this an attractive and cost-effective borrowing option.

Once you repay the loan in full, the lien is lifted, and you regain complete access to your fixed deposit. If you fail to repay the loan, the bank can liquidate the FD to recover the outstanding amount.

While you cannot freely access the FD during the loan tenure, it remains active, earning interest, and is released back to you upon loan repayment.