Understanding Non-callable Deposits: Everything You Need to Know
When you book a fixed deposit, you must choose a comfortable tenor option for which you want to invest your money. Sometimes, you are allowed to withdraw them; other times, you must commit to the tenor with no option to make an early withdrawal.
With non-callable deposits, you secure your funds for a longer duration. In exchange, you get better benefits than FDs with an option for premature withdrawal. Knowing about non-callable deposits is important for long-term investment and achieving lucrative returns.
Know what non-callable term deposits are, their features, benefits, and drawbacks for a smart investment option.
Introduction to Non-Callable Deposits
It is a type of FD that comes with a mandatory lock-in maturity period. This means that once you have made a deposit, you cannot make partial or full withdrawals. Banks and Non-banking Financial Institutions (NBFCs) only allow premature withdrawal under specific circumstances. So, you can opt for an early withdrawal if there are no other options available.
To compensate for low liquidity, this investment option gives you better returns compared to a callable deposit. It comes with a fixed tenor and a higher initial investment amount.
Features of Non-callable Deposits
Here are the key features of non-callable deposits you should know about.
Higher Interest Rates
Opting for non-callable FD gives you a higher yield, as it mitigates the risk of unexpected withdrawal for the issuer. This also stabilises asset management. Thus, this option is ideal if you want to invest a large sum for a longer term.
Fixed Maturity
Most issuers offer a maturity period of one year or two years, during which you cannot make a withdrawal. However, you can choose any flexible tenor which you are comfortable with.
Tax Benefits
Option for a tax-saving FD allows you to claim tax benefits on investments of up to ₹1.5 Lakhs as per Section 80C of the Income Tax Act of 1961. However, it has a compulsory lock-in period of 5 years.
Secure Investment
Since FDs are not affected by market fluctuations, your investment is secure. Even if you opt for an option with or without withdrawal, there is no risk of loss.
Long Term Gains
With every consecutive year of investment, you get a better yield due to the principle of compounding. Therefore, this option is ideal if you plan for a long-term investment. However, strategic planning is crucial before investing your funds in these FDs.
No Penalties
With callable fixed deposits, you must pay a penalty of 0.50% to 1% on premature withdrawal. This can lower your profits significantly if you opt for liquidation before maturity. Non-callable deposits allow you to save from such loss.
Guaranteed Higher Yields
Fixed deposits are generally the best option for risk-averse investors, as they give you a guaranteed return on every investment. Whether you opt for regular payout mode or payout at maturity option, you can earn substantial returns on the invested amount.
Restricted Withdrawals
The key feature of this deposit is that you can only make withdrawals under specific circumstances. This includes situations when the account holder files for bankruptcy or in case of their untimely demise.
Minimum Investment
Since October 2023, the minimum investment amount for non-callable deposits is ₹1 Crore. Before the notice, the limit was ₹15 Lakhs for term deposits.
Loan Against FD
You can easily use your FD as collateral to avail a loan. This way, you do not have to liquidate your deposit before maturity in the case of urgent fund requirements.
Advantages of Non-callable Deposits
Here are all the benefits that you get to earn when you opt for non-callable deposits.
- You can keep your savings or surplus funds secure while continuing to earn lucrative returns
- It is a more stable option compared to stock market investments
- You can achieve long-term investment goals like retirement, children’s education, weddings, etc.
- You can book a deposit swiftly with your preferred bank or NBFC with the online FD application process
- You can accurately estimate your return using an online FD calculator, as it has fixed terms for this deposit
- You can get a sizeable loan amount with your FD as collateral, as a high investment amount and fixed tenor reduce the lender’s risk
Drawbacks of Non-Callable Deposits
To make an informed decision, here are some disadvantages you may have to deal with when opting for non-callable term deposits.
- You cannot access your savings in case of any unforeseeable situation
- It requires a large initial investment amount, which may be hard to arrange
- Once invested, you cannot withdraw and reinvest in a better investment opportunity
By comparing these features and benefits, you can decide if such an investment option helps you meet your financial goals. You can also assess your financial standing to choose between callable and non-callable deposits. This way, you can enjoy the best benefits without having financial restrictions.
