Do non-callable fixed deposits offer any advantages?
In a non-callable fixed deposit, banks don’t allow customers to withdraw the FD prematurely. The depositor must wait until the maturity of the FD. Due to this, banks offer slightly higher interest rates on non-callable FDs.
Use them for diversification
FDs without a premature withdrawal facility are not available to all customers. According to regulations, the minimum amount for a non-callable FD should be above ₹15 lakh. Some banks ask for a minimum investment of ₹2 crore.
Most small finance banks require a minimum investment amount of more than ₹15 lakh and up to ₹2 crore. But lenders such as ICICI Bank and IndusInd Bank require a minimum deposit of ₹2 crore and ₹1 crore, respectively.
The interest rates on such FDs vary from bank to bank. According to Punjab National Bank’s website, a non-callable fixed deposit can fetch 5 basis points higher interest than a callable FD.
Between one year and up to three years, non-callable FDs offer an interest rate of 5.15%, while those with a premature withdrawal facility offer a rate of 5.1%.
In the case of small finance banks, the difference can be up to 25 basis points. One basis point is one-hundredth of a percentage point.
“Such deposits can be suitable for customers with a portfolio of FDs. They can decide the tenure based on their cash flow requirement and open a non-callable deposit. A part of their FD portfolio can get higher returns,” said Basavaraj Tonagatti, a Bengaluru-based Sebi-registered investment adviser.
Some investors are willing to take a risk for higher returns. They invest up to ₹5 lakh with banks offering better returns as such amounts have deposit insurance.
