FD rule change: Now, premature withdrawal allowed on fixed deposits up to Rs 1 crore; applies to NRE & NRO deposits too

Have a bank fixed deposit (FD)? You can now exercise the option of premature withdrawal for deposits up to Rs 1 crore. The Reserve Bank of India (RBI) has raised the minimum amount for offering non-callable term deposits to Rs 1 crore from the current Rs 15 lakh for banks. This change allows all customers the option to prematurely withdraw money from fixed deposits of up to Rs 1 crore, states an ET report.
Non-callable FDs are term deposits that do not permit premature withdrawals until the tenure is completed.Once you invest in these FDs, your funds remain locked until the FD matures.
The central bank’s notification, released on October 26, 2023, states, “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, the RBI has decided that the minimum amount for offering non-callable TDs may be increased from Rs 15 lakh to Rs 1 crore i.e., all domestic term deposits accepted from individuals for amount of Rs 1 crore and below shall have premature-withdrawal-facility.

An important point to note is that these instructions shall also be applicable for Non-Resident (External) Rupee (NRE) Deposit / Ordinary Non-Resident (NRO) Deposits.
This circular applies to all commercial banks and co-operative banks.
According to the ET report, banks often offer slightly higher interest rates on non-callable FDs compared to regular fixed deposits since the funds are locked for a specific duration. For example, SBI offers an interest rate of 7.10% on its one-year non-callable Sarvottam FD, while the two-year non-callable FDs come with an interest rate of 7.40%. Regular FDs maturing in a year yield an interest rate of 6.8%. On the other hand, FDs with premature withdrawal options offer an interest rate of 7%.
Bank of Baroda provides an additional interest rate of 0.25% on non-callable FDs below Rs 2 crore and an additional 0.10% on non-callable FDs of Rs 2 crore and above.
The change benefits individual investors who can now invest in non-callable FDs without penalties for premature withdrawals up to Rs 1 crore, including NRE/NRO deposits, notes Abhishek Kumar, a SEBI Registered Investment Advisor (RIA) and Founder of SahajMoney.
These instructions are effective immediately. RBI has also increased the bulk deposit limit for regional rural banks to Rs 1 crore from Rs 15 lakh. As per the new definition, “bulk deposit” for regional rural banks now includes single rupee term deposits of Rs 1 crore and above.