Explore the Difference Between Callable and Non Callable FD and Their Interest Rates

If you have been following developments in the markets lately, it has been anything but predictable. The world is swinging between economic slowdowns, inflation and fluctuating interest rates which is making investors anxious. It is during this time that people are shielding their hard earned money under Fixed Deposits. 

Up until a decade ago, it was pretty forward. You got some money to put in a fixed deposit? Just go to the bank and open your FD account. With the introduction of Non-Callable FDs, the question to choose the right kind of FD has entered the investors’ mind. Thus, understanding the difference between callable and non-callable FD is important. While both offer guaranteed returns and minimal risk, there are some important differentiators to consider such as flexibility, interest rates and access to FD funds. Let us understand callable vs non callable FDs in more detail here.

Quick Summary

• Callable FDs offer the option for pre-mature withdrawal but non-callable FDs don’t.
• Since there is no flexibility on duration, the non-callable FDs offer higher interest rates than callable FDs
• Callable FDs have high liquidity making funds accessible during urgent needs, while non callable FDs are accessible on maturity.

Callable vs Non Callable FD: Comparison

Before understanding the between callable and non callable FDs, it is important to understand the concept of these FD instruments. 

What is a Callable FD?

A callable FD is a term deposit option that allows investors to invest in fixed deposits with provision to withdraw their investment prematurely. This type of FD is convenient, especially, in case of an emergency making it a safety net for urgent needs. While that option is available with the investors, they have to pay a penalty for early withdrawal of funds.

What is Non Callable FD?

Non callable FDs, on the other hand, are term deposit options introduced by the Reserve Bank of India a decade ago. These Fixed Deposit options allow investors to put funds for a specified time period with a set maturity date. Unlike callable FDs, these cannot be withdrawn prematurely. Non callable FDs offer higher interest rates compared to callable FDs and are more suitable for people looking to park their money for a long period of time.

Difference Between Callable and Non Callable Deposits

To help you understand the difference between these two term deposit options, we have created a table comparing features of callable and non callable FDs for you. Check this out:

Callable vs Non Callable FDs Interest Rate Comparison

Now that you know the major differentiators between callable and non-collable FDs, we have collated a list of top banks and their interest rates for general public for both the term deposit options:

Compare Interest Rates and Book FD With Highest Returns on Stable Money

Callable or Non Callable FD: Which is Better For You?

Now that you know in detail about the difference between both the types of FD and how much interest you can earn from them, it's time to choose the best pick for yourself. To understand which is the best FD type, you can consider the following factors:

Interest Rate

As shown in the table above, the interest rates on non callable FDs is slightly higher compared to the callable FDs. Although the difference generally ranges between 0.25% to 0.50% but that makes a huge difference. Lets take an example for better understanding:

Case in point:

Suppose you invest ₹5,00,000 for 2 years in SBI with annual compounding

• Callable FD Rate: 6.50%
• Non-Callable FD Rate: 6.80%

Maturity Value:

• Callable FD: 5,00,000 x (1+6.50/1)^2 ≈ 5,67,112
• Non-Callable FD: 5,00,000 × (1 + 6.80%)^2 ≈ 5,70,312

Access to Funds

Based on when you need the invested amount, you can choose if you wish to invest in callable or non callable FDs. If you are unsure about your financial needs during the investment period, you can go for callable FDs. This will give you access to liquidation of funds, although with a small penalty but quickly with no lock-in clause.

Whereas, if you are sure about your financial needs and have a safety net in case of emergencies already in place, non callable FDs can be a good choice. You can earn better interest rates and enjoy good returns upon maturity.

Tenure of Deposit

Depending on your financial goals, you can choose the term deposit type for yourself. A callable fixed deposit is suitable for short term financial goals. On the other hand, non callable FDs are suitable for those with long-term financial needs. Ideally, to cater to short or medium term goals, callable fixed deposit makes sense but if you wish to build wealth, non callable FDs could be a start.

Flexibility

One of the biggest advantages of a callable fixed deposit is that you can withdraw them prematurely by paying a small penalty fee. Anyone whose financial needs are unstable, callable deposits would fit in since it is easier to withdraw money here. Investors with disciplined investment mechanisms generally opt for non-callable fixed deposits.

Bottom Line

Of course this is not a one size fits all situation. When it comes to understanding the difference between callable and non callable FD and making an investment, you should consider your goals, liquidity needs, financial stability and expectation on returns.

For quick emergency fund access, callable FDs are a safer bet than non callable FDs which do not offer such flexibility. But if you are all in to maximize returns and build wealth, non callable FD is the right choice for you.

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