Understanding callable and non-callable FDs

Fixed Deposits (FDs) have long been the go-to investment option for individuals looking for a safe and reliable way to grow their savings. With the introduction of callable and non-callable FDs, investors are equipped with more nuanced investment strategies tailored to their specific needs.

What are callable Bank Fixed Deposits (FDs)?

A Callable Fixed Deposit or normal FD offers investors the convenience of withdrawing a portion or the entirety of their funds prior to the set maturity date. Opting for early withdrawal, however, may attract a penalty from banks and NBFCs, which is a trade-off for the flexibility such deposits provide.

Features and benefits of a callable Fixed Deposit

Callable Fixed Deposits stand out as a flexible investment option, balancing the trade-off between higher returns and liquidity management.

Enhanced liquidity: The standout feature of a callable FD is the option to access your funds before maturity, which can be crucial in times of financial need. Despite the penalty for early withdrawal, the ability to liquidate your investment for urgent cash flow provides a safety net.
Flexibility in investment: Callable FDs may not always offer the highest interest rates, but they make up for this with significant flexibility. You can choose the duration of your investment and the amount you wish to deposit, allowing you to align the deposit closely with your financial objectives.
Low minimum investment requirement: The accessibility of callable FDs is enhanced by the low minimum deposit requirement, opening up this investment option to a wide audience. Whether you're starting with a small amount or looking to diversify your portfolio without committing a large sum, callable FDs provide an entry point for investors of various capacities to benefit from the scheme.

What are non-callable Bank Fixed Deposits (FDs)?

Non-callable Fixed Deposit represents a secure investment avenue where the funds are locked in until the end of the maturity period without the option for early withdrawal. This type of fixed deposit often demands a larger initial investment but offers more attractive interest rates in return, as the capital is guaranteed to remain untouched until maturity.

Features and benefits of a non-callable Fixed Deposit

Non-callable Fixed Deposit offers the dual benefits of investment security and attractive returns, making it an ideal choice for investors seeking a stable growth path for their savings.

Guaranteed higher yields: The chief advantage of a non-callable deposit is the assurance of receiving the full maturity amount, which can result in higher interest earnings than what you might expect from a callable or normal fixed deposit.
Restricted withdrawals for enhanced security: In contrast to callable FDs, non-callable deposits strictly limit withdrawals to extremely rare circumstances, such as the account holder's bankruptcy or death.
Locked-in investment: Non-callable FDs require your investment to be fixed for a definite period. This locked-in approach guarantees that your funds are not only safe but also growing steadily.

Factors to consider when choosing between Callable and Non-Callable FDs

When deciding between callable and non-callable FDs, understanding the difference between callable and non-callable FD is pivotal to aligning your investment with your financial goals and risk preferences.

Interest rates and returns

Non-callable FDs typically offer higher interest rates compared to callable FDs, as the funds are locked in for the duration of the deposit without the option for early withdrawal. Conversely, callable FDs may provide slightly lower interest rates due to their flexible withdrawal features, which can be a trade-off for having access to funds in unforeseen financial needs.

Liquidity and flexibility

Callable FDs shine in terms of liquidity and flexibility, allowing investors to withdraw their funds before maturity if necessary, albeit with a penalty. Non-callable FDs lack this flexibility, as they are designed to secure the investment until the end of its term, offering no room for early withdrawal without facing significant restrictions.

Also Read: Top 5 reasons to open a Digital Fixed Deposit

Investment goals and time horizon

Consider your investment goals and the timeframe over which you intend to achieve them. Non-callable FDs are well-suited for long-term goals where steady growth is preferred. In contrast, callable FDs may be more appropriate for short-term investment strategies where flexibility is a priority.

To conclude, when choosing between callable and non-callable FDs, consider your investment goals, time horizon, and liquidity needs. Non-callable FDs offer higher interest rates but lack liquidity, suitable for long-term goals. Callable FDs provide flexibility with lower interest rates, more suitable for short-term strategies and unforeseen financial needs.

Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.