Callable and non callable Fixed deposits: Benefits, Limitations

Know about Callable and noncallable fixed deposits. What are Callable and Non-callable Bank Fixed Deposits (FDs)? A very few months ago Reserve Bank of India introduced non-callable fixed deposits in India. To avoid the serious problems arising in asset and liability management of banks RBI has launched this type of instrument.

Know about Callable and non callable fixed deposits

Fixed deposit means an amount being deposited in a bank carrying a certain percentage of interest. The amount invested in fixed deposits is normally kept with the bank for a predetermined period. Generally, they can be withdrawn before the maturity date.

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(1) Callable fixed deposits :

A fixed deposit which can be withdrawn by the depositor before the maturity date of that deposit. In simple all the fixed deposits which facilitates pre mature withdrawal are called as callable deposits. Bank charges some amount of penalty for withdrawing the amount before maturity. Callable fixed deposits doesn’t carry any lock in period.
Before the non callable deposits were introduced all FD s are callable.

Benefits :

(1) High liquidity : whenever you require money , it can be immediately withdrawn.

(2) Minimum amount to be deposited will be less compared to non callable.

Limitations :

• (1) Bank charges certain amount of penalty for pre mature withdrawal.
• (2) Rate of interest earned by callable fixed deposits is lower when compared to non callable fixed deposits.
• (3) They are not a stable source of money to the bank. Which is a very serious disadvantage to the banks.

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Non callable fixed deposits :

Non callable fixed deposits do have lock in period. The amount invested in these deposits can’t be withdrawn before the date of maturity except in cases of Bankruptcy, orders by, winding up of business, death cases, etc.. And the minimum amount to be deposited will be very compared to callable deposits. They carry premium rate of interest since the funds are blocked for the period of maturity.

Benefits :

• (1) They earn much more interest than callable fixed deposits.
• (2) They can be said as a stable source of funding to the banks.
• (3) They enable the bank to have good asset liability management system.

Limitations :

(1) If you encounter with any urgent requirement of money you can’t withdraw from the non callable fixed deposits. Thus they are not liquid instruments.

(2) Funds of the investor will be blocked for the predetermined period. If the investor who bought this non callable fixed deposits having a maturity period of 5 years and in the 2nd year he found a great investment opportunity where he could certainly make better returns than the interest given by the bank. In such cases it results in loss of possible returns.

(3) Minimum amount of deposits is very high. So it’s not available to a wide class of people who can’t deposit such a huge amount.

To be first in India Axis Bank has introduced this “non callable fixed deposits” with following features :

• (1) Minimum amount of deposit is Rs 15,00,001.
• (2) Available to both, Residents and NRI s.
• (3) Premature withdrawal is not allowed except in case of death or bankruptcy, order by court.
• (4) Period of maturity is 1 year and 2 years maximum.
• (5) Automatic renewal is not facilitated.
• (6) One can choose either simple interest or compound interest.
• (7) Currently for 1 year non callable fixed deposits rate of interest offered by Axis bank is 8.3 % which is not a better deal compared to 8.2% of 1 year callable.

These are appropriate for those who don’t want to bear any risk along side of earning a stable rate of interest without any requirement for cash before it gets matured.

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