Business | Finance

5 Things That Make Callable Banks Fds Different From Non-callable Bank Fds

June 27, 2016

Investing in a Fixed Deposit has become somewhat of a necessity, so it’s only fair to know what options you, as an investor, have. Read on to know about callable FD’s.

Fixed Deposits are crucial in today’s economy. There are hardly any other ways to invest money with as little risk and guaranteed returns as a Fixed Deposit account. But with so many banks and NBFCs offering their versions of best Fixed Deposit plans, it might get difficult for a newbie to choose the correct one. Also, if you’re unsure about the necessity of your deposit, you could sustain loss.
Fixed Deposits (FDs) work in a strict manner of keeping a certain amount of deposit for a predetermined duration of time, for which the provider will pay you interest. Just like any other savings account, you can pick between floating and fixed interest rate on Fixed Deposits, depending upon your risk tolerance. However, all FDs carry a serious drawback.
Withdrawal of the amount deposited any time before the predetermined date of maturity can carry quite the price tag. This seems to be the biggest issue that middle-class investors deal with. So, is there a way out? Read on to find out about callable and noncallable FDs.
Difference between callable and noncallable FDs
Quite a recent addition, the non-callable FD is garnering a lot of interest from investors, banks, and NBFCs. Which one best applies to you? Here are a few major differences between callable and noncallable Fixed Deposits.
Nature of account
A callable FD allows for premature withdrawal of the deposit. In other words, the investor can withdraw the deposit even before the predetermined date of maturity. All callable FDs will allow the investor to do this after paying a minimal charge to the provider, but they won’t have a permanent lock-in period.
A non-callable FD, on the other hand, does not allow the investor to pull out the deposited money. The breach of the same can lead to immense loss and a bad credit score.
A callable FD will have a lower rate of interest than that of a non-callable FD. The logic here is simple; a non-callable Fixed Deposit helps banks and NBFCs manage their asset and liability system, so the investor is given a higher rate of interest. But, breaking a non-callable FD prior to the maturity date can result in a huge premature withdrawal fee.
The same cannot be said for a callable FD. There’s no assurance of the duration the deposit is with the bank, which makes it impractical for them to entertain investors for a callable Fixed Deposit account. However, callable FDs can be put in for longer duration and thus, may result in more profits than a non-callable FD.
Minimum amount requirements
Non-callable FDs carry a very high lower limit of minimum deposit. Since they assist the bank or NBFC in thriving their asset and liability system, it makes it next to impossible for financial institutions to have any reason to let the investor take away their deposit. This is why many middle class investors aren’t able to avail the non-callable Fixed Deposit schemes.
Callable FDs don’t come with a minimum deposit and start as low as Rs.5000. This makes it easier for anyone to open a callable FD account.
Since the option of a non-callable FD was only introduced in 2015, it is very difficult to get hold of banks and NBFCs that enable their customers to open a non-callable FD account. However, a callable FD account is much easier to open and maintain.
Also, in certain cases, many providers prefer a callable FD for customers who have availed their FDs at a high rate of interest. This saves them from paying the due interest to the account holder. If a customer has opened a Fixed Deposit account with a floating rate of interest, and the market rates go up, the provider might have to suffer a loss. This is why callable FDs are still a preferred option to a lot of providers.
Duration Limit
Another feature of the non-callable FD is that it has a very low maximum tenure limit. It starts at a minimum of 1 year and can be stretched to a maximum of 2 years. It may differ by a few months or so, but nothing more. This may not give the investor the best profit even at a higher rate of interest.
A callable deposit, on the other hand, comes with a minimum of 7 days to a maximum tenure of ten years, during which the investor can make serious profit depending upon the principal deposit amount and the rate of interest. Sometimes, it has also been noticed that a callable FD with a low rate of interest fetches more profit than a non-callable FD with a higher rate.
Which is the best idea for you?
After having understood both kinds of Fixed Deposit options available, you will be in a position to make a call as to which best suits your financial goals and risk tolerance. If you have a huge lump sum to deposit, which you are sure you will not need anytime soon, then the non-callable Fixed Deposit is for you. It will fetch you reasonable profit and, if you can handle it, the risk is worth it.

If you’re a middle-class investor who is looking to gain a little bit of support with the monthly income, then the callable Fixed Deposit is for you. It will give you a steady return monthly (or annually), which will assist you with your expenses and other financial needs.

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