What Are Callable and Non-Callable Fixed Deposits?
Ojas Bhatia, a 24-year-old businessman, was a reckless spender. His business was doing very well. But Ojas could not save money, thanks to his lavish lifestyle. Ojas’s father was worried about his son’s future. One month, Ojas earned a huge profit from a business deal. His father forced him to lock the money in a non-callable fixed deposit (FD). Ojas planned to do his MBA from a foreign university in a few years. His father’s insistence on saving helped him. Today, Ojas has the required savings to pursue his educational goals.
What Is a Non-Callable FD?
A non-callable FD is one which you cannot ‘call back’ or withdraw once you have locked in your money. You have to wait for the tenure to get over. Only then can you get back any amount, whether principal or dividend.
What Is a Callable FD?
A callable FD is a regular FD from which you can make a withdrawal in a financial emergency. The financial institute with which you have the FD account may penalise you. Withdrawing from your FD before time can attract a fee. But you might not face any legal issues while breaking a callable FD.
What Are the Features of a Non-Callable FD?
Take a quick look at the features of a non-callable FD.
- Principal: A non-callable Fixed Deposit can be a large investment. The least principal must be Rs 15 lakh.
- Tenure: You can invest in non-callable FDs only for a short tenure. The longest tenure tends to be two years. The shortest tenure is a year.
- Withdrawal: You cannot withdraw money from a non-callable FD. But, under certain legal circumstances, the depositor can withdraw the money. These include bankruptcy or the death of the investor. Or it could be a company winding up its business.
- Renewals: You cannot auto-renew non-callable FDs. Upon maturity, you have to withdraw the amount and close the FD. What should you do if you wish to continue with the scheme? You have to invest your money in a fresh non-callable FD.
What Are the Features of Callable FD?
Here are a few features of a callable FD.
- Low deposits: The deposit amount can be lower as compared to other FD option. This makes it more affordable for a large majority of crowd.
- Liquidity: You can withdraw money from your FD with minor penalties. This makes it a desirable choice for people who need cash in an emergency.
Which Type of FD Should I Opt for?
Both callable and non-callable FDs offer almost similar rates of interest. There is a difference of about 0.1%. So, you need to opt for the FD of your choice based on the following factors:
- Discipline: Many people like Ojas invest in non-callable FDs to ensure disciplined savings. Do you want to make sure that you might not touch your money at all? A non-callable Fixed Deposit is a good option for you.
- Financial needs: Do you expect a big expenditure anytime soon? Then locking your money away in a closed fund may not be a good idea. You may have to withdraw your money to meet the financial emergency. In such a scenario, always go for a callable FD.
- Availability of funds: You can set up a callable FD for even a small amount. But, you must invest at least Rs 15 lakh in a non-callable FD. So, opt for the fixed deposit of your choice after assessing your financial capacities.
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The bottom line:
Both callable and non-callable FDs allow you to invest in a safe manner. But, there are some core differences between the two. Understand these differences and assess your needs and habits. This can help you find the FD that is most suitable for you.