A callable FD is a type of fixed deposit account that allows investors to withdraw a portion or the entirety of the deposited sum prior to the set maturity date. In other words, all normal fixed deposit accounts that permit premature withdrawals can be categorised as callable FDs. However, most banks and NBFCs allow premature withdrawals against a penalty charge. This penalty usually ranges from 0.5%-1% and is charged on the bank or NBFC FD interest rate, resulting in slightly lower yields from the account.
Features and benefits of a callable fixed deposit
Callable FDs stand out as flexible investment avenues that strike the perfect balance between higher returns and liquidity management. Here’s a list of all the features and benefits you can enjoy with a callable fixed deposit account:
- Enhanced liquidity: One of the greatest advantages of callable fixed deposits is the enhanced liquidity quotient they bring to the table. With callable FDs, you have the option of accessing your saved funds during a financial emergency. Despite the penalties applicable, you can easily liquidate your callable fixed deposit investment to meet urgent cash flow requirements. Learning how to break your FDs helps you leverage investments to meet emergency cash needs rather than create a payment liability with credit options like personal loans.
- Flexibility of investment: Callable FDs offer flexibility to investors in terms of the deposit tenure and amount. In other words, you can choose how much you wish to invest and for how long. Investment tenures generally range from 7 days to 10 years, so you can easily align durations based on your financial objectives and goals. While the interest rates on these FDs are generally lower than the ones available for non-callable options, they are preferred for this inherent investment flexibility.
- Low minimum investment ceiling: Callable FDs are one of the most accessible safe investment options in the country due to their low minimum investment ceilings. Most banks fix the minimum deposit amount for callable fixed deposits at Rs. 1,000, allowing a wide range of investors—both small and big—to benefit from this investment vehicle.
What is a non-callable fixed deposit
A non-callable FD is a type of fixed deposit account that comes with a predetermined lock-in period. These FD accounts do not permit premature withdrawals. The amount invested in the FD cannot be withdrawn until the maturity date. Withdrawals are permitted only in exceptional cases, such as bankruptcy, by court order, or due to the death of the account holder. Since these FD accounts come with a lock-in period, they offer better interest rates than callable FDs.
Key highlights
Here’s a run-through of the key highlights on callable fixed deposits:
- A callable FD is a type of fixed deposit account that allows partial and whole premature withdrawals before the end of the maturity term.
- The RBI introduced non-callable fixed deposits in 2015 with higher interest rates and a predetermined lock-in period.
- A non-callable FD is one that does not allow premature withdrawals or account closures before the maturity date.
- The minimum investment amount for non-callable FDs was Rs. 15 lakh — significantly higher than callable fixed deposits. The RBI raised this minimum deposit requirement to Rs. 1 crore in October 2023.
- Non-callable FDs generally offer higher interest rates. However, you lose out on the liquidity benefits of the investment with the mandatory lock-in mandate.
Also Read: How to download your Fixed Deposit receipt
Conclusion
Considering your investment goals, time horizon, and liquidity needs is paramount before choosing between callable and non-callable FDs. While non-callable FDs bring you higher interest earnings, the high minimum deposit requirement of these deposits might make them impractical for average investors. Additionally, most investors can earn better returns by investing this amount in market instruments instead of a non-callable fixed deposit account.
Callable FDs, on the other hand, are well-suited for risk-averse retail investors looking for safe investments, monthly income, or retirement planning options with the possibility of early withdrawals. The only drawback of these FD accounts relates to the relatively lower interest rates. However, you can easily tackle this issue by investing in a high-interest-paying corporate FD. For instance, you can grow your funds with a Bajaj Finance FD that offers interest rates of up to 8.85% p.a. Certified with the highest [ICRA]AAA(Stable) and CRISIL AAA/STABLE stability ratings, a Bajaj Finance FD ensures that your deposits are completely secured.
