The Reserve Bank of India (RBI) on October 26, 2023, has increased the minimum amount for offering non-callable term deposits to Rs 1 crore from the existing Rs 15 lakh for banks. So, all customers will get an option to prematurely withdraw money from fixed deposits (FDs) of up to Rs 1 crore.
Non-callable fixed deposits refer to a category of term deposits that offer no premature withdrawal option before the completion of tenure. Once you invest in these deposits, your money will be locked for the entire tenure. You can only access the money once your FD matures.
In a notification released on October 26, 2023, the central bank said, "In terms of these instructions, banks have been permitted to offer domestic term deposits (TDs) without premature withdrawal option, provided that all TDs accepted from individuals for an amount of Rupees fifteen lakh and below shall have premature withdrawal-facility. Further, the banks have also been permitted to offer differential rate on interest on TDs based on non-callability of deposits (i.e., non-availability of premature withdrawal option) in addition to tenor and size of deposits."
On a review, it has been decided that (i) the minimum amount for offering non-callable TDs may be increased from Rupees fifteen lakh to Rupees one crore i.e., all domestic term deposits accepted from individuals for amount of Rupees one crore and below shall have premature-withdrawal-facility and (ii) these instructions shall also be applicable for Non-Resident (External) Rupee (NRE) Deposit / Ordinary Non-Resident (NRO) Deposits," it added.
"This circular is applicable to all commercial banks and co-operative banks," the central bank said.
Banks usually offer higher interest rates on non-callable FDs
As your money is locked-in for a certain period, banks usually offer slightly higher interest rates on non-callable FDs than regular fixed deposits. For instance, SBI offers an interest rate of 7.10% on its non-callable Sarvottam FD maturing in a year. For two-year non-callable FDs, the bank offers an interest rate of 7.40%. Meanwhile, regular FD maturing in a year fetches an interest rate of 6.8%. Similarly, fixed deposit which have the option of premature withdrawal, offer an interest rate of 7%.
Bank of Baroda offers an additional interest rate of 0.25% on non-callable FDs below Rs 2 crore. For non-callable FDs of Rs 2 crore and above, the public sector bank offers an additional interest of 0.10%.
"This will help individual investor in putting their money into FD of banks which charge no penalty on premature withdrawal for amount up to Rs 1 crore. Also, the same is applicable for NRE/NRO deposits," says Abhishek Kumar, a SEBI Registered Investment Advisor (RIA) and Founder of SahajMoney.
These instructions shall come into force with immediate effect, RBI added.
RBI has also enhanced the bulk deposit limit for regional rural banks to Rs 1 crore from Rs 15 lakh. Accordingly, “ “bulk deposit” for regional rural banks would now mean single rupee term deposits of Rupees one crore and above, the central bank said.
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