How to Choose Between Callable and Non-Callable FDs

Over the past couple of years, Fixed Deposits (FDs) have regained their stronghold as the number one investment instrument - thanks to the rising interest rates and the security they provide. When we talk about FDs, we also talk about the liquidity they provide. 

As in, FDs offer quick access to funds during financial emergencies, though at a certain penalty fee. Such Fixed Deposits are commonly known as callable Fixed Deposits. However, all of this changed in 2015, when RBI introduced another type of FD - non-callable Fixed Deposits. 

In this blog, we have detailed the difference between callable and non-callable Fixed deposits, their pros and cons and which one should you choose.  

What is a Callable Fixed Deposit?

A callable Fixed Deposit is similar to a regular FD where you can withdraw your deposit amount before the maturity date. The bank may charge a penalty fee for early FD withdrawal, which may go up to 1% (reduced interest). 

Investors can also opt for overdraft facility or loan against FD with callable deposits. The minimum deposit amount could be as low as ₹1,000. All callable deposits up to ₹5 lakh are insured under DICGC (Deposit Insurance and Credit Guarantee Corporation) per depositor per account.

Point to note: Ujjivan SFB doesn't levy any penalty fee for withdrawals made after 6 months from the time of deposit.

Features and Benefits of Callable Fixed Deposits 

1. Easy Access to Cash

You can withdraw your deposit amount before the maturity period. However, you may have to pay a penalty up to 1% for early withdrawals. Contact your bank to get better clarity of premature withdrawal charges.

2. Low Minimum Investment Requirement

Callable Fixed Deposits come with low deposit requirement. Generally, you can start investing in callable FDs with just ₹1,000. This gives flexibility to investors to choose their deposit amount as per their financial goals and capacity.

3. Flexibility in Deposit Tenure 

Callable FDs don't have any lock-in period. The tenure usually ranges from 7 days to 10 years. Of course, you're not allowed to withdraw funds before 7 days, but there's no specific lock-in period as such.

4. Higher Interest Rates Compared to Savings Account

Such Fixed Deposits offer higher interest rates compared to Savings Account. This helps you maximise your savings if you stay invested for the long-term.

Point to Note: Ujjivan SFB offers high-interest Digital Savings Account, which you can open from the comfort of your couch.

5. Auto-Renewal Facility

You can opt for auto-renewal of your FD at the time of opening the account, meaning the maturity amount will get re-invested in the same FD for the same tenure. This may help investors achieve long-term growth. 

What is a Non-Callable Fixed Deposit?

Non-callable Fixed Deposits are bank deposits that come with a lock-in period, meaning you cannot with draw funds before the FDs maturity. There are certain exceptions though including situations involving bankruptcy, court order, or the depositor's demise. Kindly check with your bank to understand the terms and conditions of non-callable FDs. 

However, non-callable Fixed Deposits offer higher interest rates compared to callable FDs. Probably, that's the reason why the minimum deposit amount is usually ₹1 crore. The maximum deposit limit is ₹5 crore but for NRIs (Non-Resident Indians), as per RBI mandate, the deposits should be below ₹2 crore. .

Features and Benefits of Non-Callable Fixed Deposits

1. Higher Interest Rates

Non-callable Fixed Deposits offer higher interest rates compared to callable FDs. The interest rate may vary across banks. Kindly contact your bank to understand the prevailing interest rates.

2. Minimum and Maximum Deposit Requirement

Earlier, the minimum investment amount for non-callable FDs was ₹15 lakh. However, since October 2023, the RBI has raised the minimum deposit requirement to ₹1 crore. The maximum deposit limit is ₹5 crore for Indian investors and ₹2 crore for NREs. 

3. Eligibility Criteria

Both NRIs and resident investors are eligible to invest in non-callable FDs. This increases the reach of the deposit allowing investors across borders to grow their wealth.

4. Fixed Deposit Maturity

The maturity period generally ranges from 1 year to 5 years. You're not allowed to withdraw funds before the maturity ends. There are certain exceptions for early withdrawals though based on specific situations. Kindly check with your bank for better clarity.

5. Auto-Renewal 

As per RBI mandate, you cannot auto-renew non-callable FDs. Once your FD matures, the amount will be directly credited to your bank account. 

Callable vs Non-Callable FD: Which One to Choose?

1. Assess Your Financial Goal

Start by identifying your financial goals and the timeframe within which you need the funds.  

• If you anticipate needing access to your money before maturity, callable fixed deposits might be more suitable.
• However, if you have long-term financial objectives and are comfortable with locking in your funds, non-callable fixed deposits can provide higher returns.

2. Deposit Capacity

You need to deposit a minimum of ₹1 crore to open a non-callable Fixed Deposit account. The required amount is significantly compared to callable FDs, which you can open with ₹1,000. So, clearly non-callable FDs are not for everyone. Mostly, NRIs and HNIs (High Net-Worth Individuals) opt for non-callable FDs to grow their wealth. 

3. Lock-in Period

Assess your liquidity needs before booking an FD. If you want quick access to funds, callable FDs could be a better choice. Such Fixed Deposits don't come with any lock-in period and allows premature withdrawal of funds.

4. Interest Rates

Non-callable FDs offer higher interest rates compared to callable FDs. So, if your goal is to maximise your savings or grow your wealth within a short span of time, opening a non-callable FD could be a better choice.