What is Callable FD and Non-Callable FD?

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What is Callable FD and Non-Callable FD?

RBI in its sixth Bi-Monthly Monetary Policy Statement of 2015 had announced a unique form of Fixed Deposits known as Non-Callable Deposits. 

If you are wondering what a non-callable FD is, and more importantly, what a callable FD is, you’ve landed on the right blog post. Let’s discuss what is callable FD and non-callable FD in detail.

What is Callable FD?

Typically, a fixed deposit allows the account holder to withdraw some or the entire amount deposited before the fixed deposit reaches maturity. Such fixed deposits are called callable deposits or callable FDs. 

Although some banks may impose a fine or penalty for premature withdrawal for callable fixed deposits, there is no mandatory lock-in period applicable. Before the non-callable fixed deposits were introduced in 2015, all deposit schemes in India fell under the callable category. 

What are the Features of Callable FD?

Callable FDs have the following features:

• The biggest advantage of a callable lies in its ability to be withdrawn. Even though a penalty will be imposed in case of premature withdrawal, it is still a great feature which can be availed in times of financial emergency.
• Although the interest rates provided by a callable FD is generally low (compared to a non-callable FD), it offers flexibility when it comes to the tenure and amount.
• The minimum amount required to make an investment in a callable FD is lower. Due to this, it becomes easier for everyone to invest in a callable FD as compared to non-callable FD.

What is Non-Callable FD?

Non-Callable fixed deposits are those FDs that have a lock-in term. In other words, non-callable FDs are FDs which are not callable in nature. However, these FDs do allow withdrawals in certain circumstances such as bankruptcy, winding up of a company, case of death, etc. The minimum amount to be deposited in a non-callable FD is higher compared to callable deposits. 

A higher rate of interest is paid in case of non-callable FDs since the funds are locked in for the duration of maturity period. Axis Bank, one of the most prominent private banks in India, became the first bank to introduce the pioneering non-callable fixed deposit scheme for its customers.

What are the Features of Non-Callable FD?

The following are the features of Non-Callable FDs:

• A non-callable FD is a rewarding investment scheme since you receive the maturity amount as a lump sum amount and hence, the interest yield is relatively higher than in the case of a callable FD.
• Unless the owner faces bankruptcy, winds up a company or meets a sudden demise, the non-callable FD cannot be withdrawn.
• The amount invested in this kind of FD is blocked for a maximum fixed period of either one year or two years.

Conclusion

It is necessary to know the features of callable and non-callable fixed deposits before making any investment decision. If you want to be able to withdraw the amount deposited in the FD before the FD reaches maturity, opting for a non-callable FD might not be a good idea. Nevertheless, it is recommended to consult with an expert for professional advice. 

Disclaimer: This article is for informational purposes only. Before making any decision regarding investments, it is recommended to consult with a professional.

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