Non-Callable Fixed Deposits

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Non-Callable FDs
3 min
15-April-2024

Fixed deposits have remained the go-to savings option for risk-averse investors seeking guaranteed returns. Preferred for their high interest returns, capital protection, and liquidity benefits, FDs have remained a safe and reliable way to grow your idle funds. Earlier, all fixed deposit accounts (callable FDs) allowed investors to make premature withdrawals against an interest penalty. However, in 2015, the RBI introduced a new type of fixed deposit account without this premature withdrawal clause.

Known as non-callable fixed deposits, these FDs were introduced to help banks streamline and stabilise their asset-liability management systems and offer higher interest for the mandatory lock-in term.

Understanding what is a non-callable fixed deposit will help you avoid some of the most common mistakes while investing in FDs. To help you do that, we have created this comprehensive guide on non-callable fixed deposits.

What is a non-callable FD

Non-callable FDs are a type of term deposit account with a fixed lock-in tenure. The amount invested in non-callable fixed deposits cannot be withdrawn before maturity except in specific circumstances like bankruptcy, court orders, business closure, or the depositor’s death. Moreover, this type of fixed deposit account requires a high initial investment but offers more attractive returns than callable deposits.

Components of the non-callable fixed deposit

The following table sums up the components and features of non-callable fixed deposits:

Component

Details

Minimum deposit amount

The minimum deposit for a non-callable FD was raised from Rs. 15,000 to one crore one thousand by the RBI in October 2023.

Eligibility criteria

Open to both resident and non-resident Indians.

Premature withdrawal

You lose out on benefits of FDs as liquid assets since premature withdrawals are not permitted unless a court order is issued due to bankruptcy, company closure, or the depositor’s demise.

Auto-renewal facility

No auto-renewal facility available for non-callable deposits.

Maturity date

Ranges from 1-2 years.

Interest rates

Interest rates are higher than callable FDs. Non-callable FDs offer simple and compound interest at differential rates over normal FDs.

Loans against FD

Non-callable FDs can be used for fund and non-fund-based loans, depending on the bank’s internal criteria and policies.

 

Advantages of a non-callable FD

Non-callable FD investments bring you the following benefits:

  • Higher interest rates: Banks usually offer higher interest rates on non-callable fixed deposits because the funds are locked in until the maturity date. This allows investors to enjoy higher interest yields on their principal deposits.
  • Stable funding for banks: Non-callable FDs are one of the most reliable funding sources for banks since they cannot be withdrawn before the end of the maturity term.
  • Asset-liability management: These deposits help banks maintain a good asset-liability management system. As stable funding sources, non-callable deposits help banks maintain steady cash flows to manage mismatches between assets and liabilities.

Disadvantages of a non-callable FD

Apart from an impressive list of advantages, non-callable FDs also come with a few limitations:

  • Liquidity restrictions: Non-callable deposits do not offer liquidity benefits. In other words, you cannot access your funds even to meet an emergency cash crunch.
  • High minimum deposit: Opening non-callable FDs requires a substantial investment. This makes them inaccessible to most general retail investors.
  • Missed investment opportunities: Funds deposited into a non-callable FD are locked in for a predetermined duration until maturity. This prevents the investor from reinvesting the funds into a more lucrative investment opportunity with better returns.

Eligibility criteria for non-callable deposits

If you are wondering about the right time to invest in a fixed deposit account, there is no better time than the present. But to open a non-callable FD, you must first understand the applicable eligibility criteria:

  • Both resident and non-resident Indians above 18 years of age.
  • Guardians on the behalf of minors over the age of 14 years.
  • Hindu Undivided Families (HUFs), sole proprietorship firms, partnership companies, clubs, associations, educational institutions, joint-stock corporations, cooperative banks, and other entities qualifying for term deposit accounts based on the bank’s by-laws.

Note: While these are the general eligibility terms, specific eligibility criteria can vary depending on the bank’s internal policies.

Conclusion: Are non-callable FDs worth it

While non-callable FDs do offer higher interest rates than regular FDs, they also come with liquidity restrictions. As an investor, you need to ask yourself if the higher yields promised are worth the liquidity compromises. With the RBI’s latest mandate, the minimum deposit amount for non-callable fixed deposits has been hiked to one crore one thousand. Thus, a non-callable FD is the ideal investment choice only if you have a substantial sum of money that you wish to park in a safe investment vehicle for a short period and earn higher than usual FD interests.

However, if you anticipate requiring the funds in the short term, opting for a callable deposit makes more sense. Moreover, even if non-callable deposits offer higher returns, the difference is only a few basis points. Instead of parking your funds in just non-callable fixed deposits, you can opt to diversify your portfolio and earn higher yields with market-linked investments.

You can also deposit a portion of your funds into [ICRA]AAA(Stable) and CRISIL AAA/STABLE-rated corporate FDs like the Bajaj Finance FD. You can witness your funds grow with attractive interest rates of up to 8.85% p.a. under complete protection from market volatility.

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Frequently asked questions

How can I close my non-callable FD account?

You can close a non-callable fixed deposit account only on maturity. Account closures are permitted under exceptional circumstances, according to the prevailing bank policies.

Can I get a loan against this deposit?

Yes. Banks offer both fund and non-fund-based loans against non-callable FDs. The specific loan-to-value ratio and interest rates applicable vary from bank to bank.

How liquid is this investment?

Non-callable FDs are not liquid at all.You cannot withdraw funds from a non-callable FD account, even during financial emergencies.

What is a callable FD?

A callable FD is a type of fixed deposit that allows investors to withdraw funds from the account (against an interest penalty) before the maturity date. In other words, callable FDs do not have a strict lock-in period.

How are non-callable FDs and callable FDs different from each other?

Callable deposits can be withdrawn before the end of their maturity term, while non-callable deposits cannot be withdrawn before the end of their maturity term. Both also differ in terms of parameters like the minimum investment amount, applicable interest rates, and tenures of investment.

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Disclaimer

As regards deposit taking activity of Bajaj Finance Ltd (BFL), the viewers may refer to the advertisement in the Indian Express (Mumbai Edition) and Loksatta (Pune Edition) furnished in the application form for soliciting public deposits or refer https://www.bajajfinserv.in/fixed-deposit-archives
The company is having a valid Certificate of Registration dated March 5, 1998 issued by the Reserve Bank of India under section 45 IA of the Reserve Bank of India Act, 1934. However, the RBI does not accept any responsibility or guarantee about the present position as to the financial soundness of the company or for the correctness of any of the statements or representations made or opinions expressed by the company and for repayment of deposits/discharge of the liabilities by the company.

For the FD calculator the actual returns may vary slightly if the Fixed Deposit tenure includes a leap year.