A fixed deposit (FD) is a very financial instrument provided by banks and NBFCs that allows you to invest a lump sum of money for a specified tenure, ranging from 7 days to 10 years, to earn interest at a fixed rate. These are considered one of the safest investment options as they offer guaranteed returns with predefined FD interest rates. There are two types of FDs: callable and non-callable fd.
However, most fixed deposits come with a callable feature, which gives the bank an option to close the FD prematurely by returning the principal and interest earned to date. However, in 2015, the RBI introduced another form of FD, non callable FD. Let’s understand both callable and non-callable FD meaning, their features, benefits, and differences.
What Is Non-Callable Deposit?
A non-callable FD, as the name suggests, is one where the depositor has the sole right to close the FD before maturity. The bank cannot force the premature closure of such FDs. Therefore, these deposits carry slightly higher FD Interest Rates than the callable deposits to compensate the bank for locking in the money.
Features and Benefits of a Non-Callable Fixed Deposit
- A Non-callable FD is a great investment scheme because the maturity amount is received as a lump sum amount. Thus, the interest yield is higher in comparison to the callable fixed deposit.
- Only the bankruptcy or the untimely death of the investor can force a non-withdrawable fixed deposit to be withdrawn.
- The investment amount remains blocked for a certain period that the depositor is aware of beforehand. The tenure is for a maximum of one year or two years at most.
- The schemes are a stronger source of funding for the banks because they can hold the money up to the maturity date.
- This also helps the bank to have an effective and successful asset liability management structure.
- There is no possibility for automatic renewal of the non-callable term deposit.
- The minimum deposit is extremely high, that is Rs. 15,00,001. Thus, this opportunity is applicable only to a small class of people who can deposit such a large sum of money.
What Is a Callable Deposit?
Fixed deposit is a scheme where the account holder can withdraw a partial amount or the whole amount anytime before the maturity date of the deposit. Alternatively, all the fixed deposits that are withdrawable before maturity are callable deposits. Banks may charge some fee as a penalty for withdrawing the amount before the maturity. Such callable fixed deposits do not have any lock-in period.
Features and Benefits of a Callable Fixed Deposit
- A callable FD’s most advantageous factor is its withdrawal feature. The penalty is not the issue, but the feature is really great, especially in times of financial crisis.
- The interest rate of a callable FD is typically low, but it is very flexible regarding tenure and amount.
- The amount of money that one needs to invest in this account is less. Hence, it is easier for everyone to invest in this scheme.
Reasons To Choose Non-Callable FD
What we need to notice here is that this type of FD has a huge minimum deposit requirement. For example, the Axis Bank requires at least Rs. 15,00,001 as the minimum deposit. Thus, if you have a belief that you can reach your goal easily in two or three years and you will not require such an amount of money, then you can easily deposit.
So, when the high interest rate is not worth it, you may have some problems with liquidity.
Furthermore, Axis Bank’s Fixed Deposit Plus has a minimum tenure of one year and a maximum tenure of two years. For that reason, you will not be able to save your money in such deposits for a short time. Moreover, you are not able to deposit for more than two years to earn the interest. The difference between Axis Bank’s usual FD and this Non-callable FD is only 0.10%. In other words, it might not be that worthwhile.
Therefore, if you are not one of those giant investors or who don’t have extra money to park and don’t need it for a couple of years, non-callable deposits are not a smart investment.
Non-Callable Vs. Callable FD: Which is Better?
A non-callable FD is a traditional fixed deposit that the depositor cannot withdraw prematurely before the maturity period. A callable FD, on the other hand, allows the customer to withdraw the FD amount after a minimum lock-in period, usually ranging from 30 to 90 days. However, banks may pay a slightly lower interest rate on the callable FDs.
The key benefit of a non-callable FD is the fixed, assured interest rate for the entire tenure. Non-callable FDs are thus very much preferred by risk-averse investors who want to lock into the prevailing high interest for fixed tenures.
Callable deposits offer more flexibility and liquidity as one can withdraw them partially or fully in the case of emergencies. Callable FDs allow investors to take advantage of the rising interest rates by withdrawing funds and reinvesting at higher prevailing rates.
Overall, non-callable FDs are preferred by conservative investors focused on long-term returns. Callable FDs provide greater liquidity and flexibility but with some interest rate risk. The choice depends on one’s priorities and also liquidity needs. Investors with multiple goals over many different time horizons could consider using both.
Conclusion
Non-callable FD offers moderately higher returns than callable deposits while restricting the banks from early closure. By locking your funds, you enjoy supreme authority over deciding when to withdraw the money before maturity. They are the perfect products to park the medium-term funds needing safety and stability with better yields. Assess your risk appetite, expected returns, and liquidity needs before investing.
Wint Wealth offers you a platform wherein you can compare FDs from all of the leading banks and choose the option that suits you better. So, leverage the power of FD and don’t let your funds sit idle. Check out the latest prevailing FD rates and make the right decision for your funds. Let your funds grow over time. Happy Investing!
