A fixed deposit (FD) is an investment option offered by banks and some non-banking financial institutions (NBFCs). Also referred to as a term deposit, fixed deposits are a good way to earn a healthy interest rate on your savings. They are also considered an effective means to grow your investments without the risk of any losses due to market fluctuations. However, before you commit to a fixed deposit, it is important that you know the difference between a callable and non-callable FD, and which will be better suited for you.
Non-callable FD Meaning and its Components
Non-callable FDs have a lock-in term, which means the amount once deposited in such an FD cannot be withdrawn before the maturity date. There are certain exceptions to this mandate though; under circumstances such as a death, bankruptcy, a business winding up, etc the amount can be withdrawn prematurely after submitting sufficient proof.
Since the amount is locked for a fixed period of time, a non-callable FD has a premium rate of interest that is higher than that of a callable FD. The minimum amount that qualifies for a non-callable FD is also usually high. While some banks have restricted this to a minimum of INR 15 lakhs, some banks require a minimum deposit of INR 1 crore. The interest rates too vary from bank to bank and are understandably corresponding to the minimum deposit requirement.
Under the non-callable FD scheme, both residents and non-residents are eligible to apply. The maturity period of such a fixed deposit ranges between 1 and 2 years of investment. The interest rates under a non-callable FD are calculated as simple interest or compound interest. The cheapest non-callable FD is offered by Axis Bank for an investment amount of INR 15 lakhs.
Eligibility Criteria to Invest in a Non-callable FD
If you wish to invest in a non-callable FD, you need to fulfill certain factors in order to qualify to do so. These factors are:
- The individual should be operating under his/her own identity.
- More than one person working together is eligible too.
- Minors over the age of 14 years are eligible if they fulfill the individual bank’s terms at a minimum deposit requirement of INR 10 lakhs.
- Associations, educational institutions, partnerships, clubs, cooperative banks, private banks, Gramin banks, joint-stock corporations, and other entities that are eligible to opt for a term deposit as per the bank’s guidelines are eligible to open a non-callable FD.
Benefits of Non-callable FD
Non-callable FDs offer better returns and more advantages to both the investor and the bank. Some of the benefits of a non-callable FD are:
- A non-callable FD pays significantly higher rates of interest as compared to a callable FD on the principal deposit amount.
- A non-callable FD is a reliable source of capital for banks as it is a form of more stable funding. The banks can hold onto the principal investment amount all the way up to the maturity period without any chances of it being withdrawn before the stipulated tenure.
- A non-callable FD enables banks to regulate an efficient asset-liability and management system.
Difference Between Callable and Non-callable FD
Given below is a detailed comparison between callable and non-callable fixed deposit schemes. A careful perusal of the below table will enable you to make an informed decision as to which type of fixed deposit is best suited for you.
|Particulars||Callable fixed deposit||Non-callable fixed deposit|
|Minimum deposit amount||INR 5,000||INR 1,51,000 to 1 crore|
|Eligibility||Residents and non-residents||Residents and non-residents|
|Premature withdrawal facility||Premature withdrawal is allowed||Premature withdrawal is not allowed except in certain contingencies|
|Maturity period||Ranges from 7 days to 10 years||Minimum 1 year after investment|
|Auto-renewal facility||Auto-renewal option is available||Auto-renewal option is not available|
|Loan facility against FD||The amount of FD is considered as security and a loan is granted. The loan amount depends on the amount of the fixed deposit.||Varies from bank to bank. If a loan is issued they can either be fund-based or non-fund based.|
While both callable and non-callable FD options are great investment options, the investor has to choose between the two depending on whether or not they may need to prematurely withdraw the amount before the maturity of the fixed deposit. Non-callable fixed deposits are better suitable for investors that have a portfolio of fixed deposits. Such investors can decide on their investment amount and tenure based on their cash flow. The most important factor to keep in mind is that in order to earn better return on a non-callable FD, an investor has to sacrifice on the liquidity of their funds. Nevertheless, if you wish to invest your money for a long period of time without facing the risk of market volatility, then a non-callable FD is an effective way to do so.