Callable deposits are a preferred investment option because of the liquidity benefits. In these types of deposits, you can  withdraw the invested amount and interest earnings before the tenor ends. When you book an FD, issuers allow you to choose a comfortable tenor.

Depending on whether you want to invest for a long or short term, you can choose from 7 days to up to 10 years. It is possible that you may want to withdraw your deposit amount between this tenor to manage urgent financial emergencies. 

This means that there is no lock-in period for the sum you deposit. However, the penalty levied by the financial institution reduces your interest rate, lowering your overall earnings. 

Read on to learn more about the meaning of a callable deposit, its features, and benefits.

Features of Callable Deposits

To better understand the meaning of callable FD, you must know its key features. 

Interest Rates

The interest rate for callable fixed deposits is lower than FD with a lock-in period. This is to mitigate the risk of loss to the bank or Non-banking Financial Company (NBFC). Note that your interest is directly affected by the penalties for premature withdrawal. Keep in mind that withdrawing your fixed deposit early can significantly reduce your earned interest due to penalties. It’s essential to be aware of these potential charges before deciding to break your deposit prematurely.

To understand this better, consider a hypothetical example. Say your interest rate is 8% p.a., and your issuer applies a 1% penalty. In this case, your new interest will be 7% p.a. if you opt for withdrawal before the decided tenor.

Liquidity 

This is the key feature of callable FD, as you can withdraw your funds anytime. To liquidate your FD, you can simply call your issuer or follow the online process by logging into the net banking portal. Once done, the issuer will transfer the FD proceeds to your bank account. Read Type Fd Investments .

Investment Tenor 

The tenor option may be subject to the issuer’s policy. You can choose from a minimum of 7 days to 10 years as per your preference. 

Minimum Investment

The minimum and maximum investment amount varies across issuers. In most cases, you can book an FD with a small amount of ₹1,000. Know that once you have booked a deposit, you cannot add more funds to your FD account. 

To invest any additional funds, you will have to start a new fixed deposit. Therefore, it is best to accumulate the required funds before you plan to open an FD account. 

Penalty Amount 

The amount varies between 0.5% and 1% of the FD interest rate. However, some issuers may also forgo this penalty amount. 

Perks of Investing in Callable Deposits

Here are some of the benefits you can enjoy with a callable FD. 

• You can withdraw your investment amount without any restrictions 
• You can accumulate returns throughout the FD tenor, even if you withdraw the funds before maturity
• The penalty interest is very low, which does not have a high impact on your interest earnings
• Fixed deposit issuers mention the interest rate and penalty on their websites to maintain transparency  
• The easy option of liquidating your callable FD helps you manage unexpected financial emergencies effortlessly
• You can also make a premature withdrawal if you anticipate an increase in the bank’s interest rate so you can reinvest for better returns

Drawbacks of Investing in Callable Deposits

Here are some disadvantages you must know about before you plan to book this FD. 

• You get a lower interest rate, which may be a disadvantage if you don’t opt for early withdrawal 
• The penalty amount decreases your total interest rate and, hence, impacts your earnings
• You may face opportunity costs when there is an increase in FD rates after you make the investment

When deciding on the fixed deposit options, you must compare their interest rates to make an informed decision. This helps you choose the best FD plan that aligns with your financial goals.

To simplify the decision-making process, you can use the FD calculator. All you have to do is enter the deposit amount, applicable FD rate, and preferred tenor to calculate your earnings within seconds. This way, you can choose an issuer that helps you generate sufficient returns across a stipulated timeline.