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Non Callable Fixed Deposits

The Reserve Bank of India implemented non-callable fixed deposits in India a few months ago. The RBI has introduced this type of instrument to avoid major problems in bank asset and liability management.

What is a Non-Callable FD?

Fixed deposits that are not callable have a lock-in term. Except in circumstances of bankruptcy, orders by, business winding up, death cases, etc., the cash invested in these deposits cannot be taken before the maturity date. In addition, when compared to callable deposits, the minimum amount to be deposited will be relatively low. Because the funds are locked in for the duration of the maturity period, they pay a higher rate of interest.

Components of the Non-Callable Fixed Deposit

The table below discusses the major features of a non-callable FD:

1) Minimum Deposit:

The minimum deposit that can be made is Rs 15,00,001.

2) Eligibility:

Both - the residents and the non-residents are eligible to apply for the scheme.

3) Premature Withdrawal Facility:

Premature withdrawal is not permitted unless a court order is issued in the event of death or bankruptcy.

4) Maturity Period:

The maturity period is between one and two years of the investment.

5) Auto-Renewal Facility:

There is no provision for automatic renewal in this scheme.

6) Interest Rates on the Scheme:

There are basically two types of interest in a non-callable fixed deposit, and they are simple and compound.

7) Loan Against FD:

Permitted by the Bank's existing rules. Deposits may be accepted as security for both fund-based and non-fund-based loans, depending on the criteria in place.

Importance of a Non-Callable Fixed Deposit

The critical aspect to remember is that this sort of FD has a very high minimum deposit requirement, which, for instance, is the case of Axis Bank (which was the very first private sector bank to launch the non-callable fixed deposit), is Rs.15,00,001. As a result, if you believe your goal will be accomplished in a short period of time, such as one or two years, and you will not require such funds, you can easily deposit. Otherwise, the high interest rate isn't worth it if you're in danger of having to pay it off.

Furthermore, the minimum and maximum tenures for Axis Bank's Fixed Deposit Plus are only one year and two years, respectively. As a result, you won't be able to keep your money in such a deposit for more than a few months. You also can't keep the money in the Bank for more than two years if you want to keep earning interest. The difference in interest rates between Axis Bank's regular FD and this Non-callable FD is only 0.10%. As a result, it might not be all that valuable after all.

Fixed deposits are not an intelligent investment if you are not one of those major investors or if you have a large sum of money to park that will not be needed in the near future; that is up to a couple of years.

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Advantages of the Non-Callable FD

Mentioned here are some of the major benefits of investing in a Non-Callable fixed deposit:

(1) They pay significantly higher interest rates than callable fixed deposits.

(2) They can be described as a reliable source of capital for banks.

(3) They make it possible for the Bank to maintain a good asset-liability management system.

Eligibility to Invest in Non Callable Deposits

The individuals who are eligible to apply for the non-callable fixed deposit are:

  • This scheme is open to Indian residents as well as Non-resident Indians.
  • An individual who operates under his own identity.
  • More than one person working together.
  • Minors over the age of 14 years, under the Bank's terms.
  • Clubs, associations, educational institutions, cooperative banks, Grameen banks, private banks, partnerships, joint-stock corporations, and any other entities that are qualified to open a Term Deposit account according to Bank guidelines.
  • The product is not available for minors who are under the age of 14, and the maximum amount that may be accepted in a minor account under this age group is Rs.1,000,000.

Comparison of FD rates

Name
Tenure
Highest Interest Rates
1
2
3
4
5

FAQs

Q1. How can I close my non-callable FD account?

The account can be closed on maturity according to the existing deposit or rules that are set by the Bank.

Q2. Can I get a loan against this deposit?

As per the Bank's current criteria, a loan/overdraft facility of up to 85% of the outstanding balance will be authorized at the applicable interest rate over the interest rate paid on deposits.

Q3. How liquid is this investment?

You cannot withdraw money from non-callable fixed deposits if you have an urgent financial need. As a result, they aren't considered liquid instruments.

Q4. What is a callable FD?

A fixed deposit that allows the depositor to withdraw funds before the deposit's maturity date. Simply said, callable deposits are all fixed deposits that allow for premature withdrawal. For withdrawing funds before the maturity date, the Bank imposes a penalty. There is no lock-in period for callable fixed deposits.

Q5. How are non-callable FDs and callable FDs different from each other?

You are calling your deposit for withdrawal if it is callable. You have no right to call or remove non-callable deposits before the maturity date.

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