Callable and Non-Callable Fixed Deposit (FD)

A fixed deposit is generally a deposit scheme where an amount or the whole amount can be withdrawn by the account holder prior to the maturity date of the deposit. In other words, all the fixed deposits which allow premature withdrawals are called callable deposits.

Banks may charge some amount of money as penalty for withdrawing the amount before maturity. However callable fixed deposits do not have any lock in period. 

Prior the launch of non-callable fixed deposits, all fixed deposit schemes in India were callable. 

Benefits of Callable Fixed Deposit

• The high liquidity factor about the callable FD schemes is the most advantageous considering that you can withdraw money from your deposits so far, regardless of the minor penalties.
• The minimum amount for deposits is always lower when compared with the alternative FD option introduced recently.

Disadvantages of Callable Fixed Deposit

There are certainly some major disadvantages of callable fixed deposit, which is why perhaps the alternative has been introduced:

1. In the case of withdrawing money prior to the maturity dates, bank charges penalties for taking out your own money from the deposited money till date. 
2. The interest rates earned by callable fixed deposits are much lower than non-callable fixed deposits. 
3. They are not a sustainable source of money for the bank, in which case banks do not entertain customers too much about fixed deposits. 

What are Non-callable fixed deposits?

Non-callable fixed deposits simply don’t have any lock in period. The amount that an investor invested in this product can’t be withdrawn prior to the date of maturity with the exceptions that include Bankruptcy of the account holder, winding up of business, orders by, in the case of death, etc.

Also, the minimum amount for the deposits are supposed to be much higher compared to callable deposits. They have a higher premium rate of interest since the funds are blocked for the period of maturity.

Benefits of Non-Callable Fixed Deposit

The following are the benefits of non-callable fixed deposits: 

• These schemes are more rewarding when it comes to being paid a higher rate of interest on their principal deposit amount. 
• The schemes are said to be a far more stable source of funding for the banks as they can hold the money up to the maturity date.
• They also allow the bank to have a well-established and thriving asset liability management system.

Advantages of Non-Callable Fixed Deposits

There are disadvantages of non-callable fixed deposits as well, which are as follows:

• Under emergencies where you might be in dire need of the money, it is blocked. The extreme cases of emergencies occur rarely that do allow withdrawal, else the deposited money cannot be touched. Hence, this instrument can be barely liquidated.
• Funds of the depositor are blocked for the predetermined period. If the depositor who bought these non-callable fixed deposits having a maturity period of five years and in the second year he or she found a better investment opportunity where he or she can certainly make better returns than the interest given by the bank through the non-callable fixed deposit.
• The minimum amount of deposits is very high hence limiting this opportunity only to a restricted class of people who can deposit such a lump sum amount.

Features of Axis Bank Non-Callable Fixed Deposits

The first bank to introduce a non-callable fixed deposit scheme is Axis Bank. Here are the features of the product:

1. The minimum amount of deposit is Rs. 15,00,001.
2. The product is available to both, residents and non-residential Indians.
3. Premature withdrawal is allowed only in the case of death or bankruptcy that has been ordered by court.
4. The maturity period is between one year and two years maximum.
5. There is no option for automatic renewal of the scheme.
6. There is a choice for the investor for the interest to be calculated through simple or compound calculation.
7. As of November 2015, for one-year non-callable fixed deposits rate of interest offered by Axis bank is 8.3% which is not really a greater deal compared to 8.2% of one year callable.

Is It Worth Opting for Non-Callable Fixed Deposits (FDs)?

The important thing to notice is that this type of FD comes with the huge minimum deposit requirement in the case of the Axis Bank which is a minimum of Rs.15, 00,001. Hence, if you have a feeling that your goal is fixed in short periods such as one or two years and you would not require such money, then you can easily deposit. Otherwise, the high interest rate is not worth it if you may be in trouble liquidating it.

In addition, you will find that from Axis Bank’s Fixed Deposit Plus that the minimum and maximum tenure is only one year and two years respectively. Hence, you will not be able to park your cash in such deposits for a few months. Also, you cannot deposit the amount for more than two years to continue warning the interest. The difference between Axis Bank’s normal FD as compared to this Non-callable FD is just 0.10%. Hence, it might not be all that worth after all.

Therefore, if you are not one of those giant investors or who have a surplus amount of money to park and which may not be required in the near future i.e. up to a couple of years these fixed deposits are not an intelligent investment.