A fixed deposit or a term deposit or a time deposit is a financial product provided by banks that has a fixed term. A fixed deposit pays a fixed rate of interest, that is generally better than a regular savings account, until the end of the maturity term. Interest rates can vary depending upon a number of factors; these include the monetary policy of Bank Negara Malaysia, the policies of the bank issuing the deposit certificate, the amount of money invested, the term invested, age of the depositor (some deposits provide a higher rate of interest for senior citizens and for kids (“Juniors”)) etc.
In Malaysia, there are various types of fixed deposit products available; these include Conventional Fixed Deposits, Foreign Currency Fixed Deposits and Islamic Fixed Deposits. We will try and explore the uses of investing in fixed deposits:
* Fixed deposits are attractive to Malaysians as they offer a higher rate of interest than savings accounts. In addition, priority or premier banking customers may get higher rates of interest on their fixed deposits.
* Conventional fixed deposits not only provide returns guaranteed from interest rate fluctuations but also guarantee the prinicipal amount.
* Some banks even offer the flexibility of partial withdrawals before the maturity date. For instance, Citibank’s Time Deposits offer you the flexibility of making partial withdrawals in multiples of RM5,000 while the balance amount will continue to earn interest.
* Foreign Currency Deposits have become popular as they tend to provide higher returns than conventional deposits and in foreign currency but are subject to exchange risk. They are also popular with those who have foreign currency earnings, wish to invest overseas, have business interests outside Malaysia and/or wish to educate their children overseas.
* Foreign Currency Deposits also serve as a hedging tool.
* Fixed deposits can be used as a collateral for availing of overdraft facility.
* Islamic deposits provide a Shariah-compliant financial tool that provides “Halal” returns for customers who are so inclined.
* Persons in their individual and joint capacity as well as businesses, associations, clubs, trusts etc can open Fixed Deposit Accounts.
* Some banks automatically renew a deposit upon maturity; you can also choose to have the profit / interest earned credited to your savings or current account. Alternatively, you may choose to have the entire amount of the fixed deposit (both the principal and interest) credited to your savings or current account. In such a case, your fixed deposit will cease to exist.
* All types of bank fixed deposits including Islamic fixed deposits are eligible for PIDM protection upto a limit of RM250,000 per depositor per member bank.
* To ensure PIDM protection for a larger sum of money (larger than RM 250,000) than is available for a single depositor (you) is by opening joint accounts with your mother, father or spouse. Under PIDM rules such joint accounts are eligible for separate protection up to RM 250,000 each provided that each of the joint accounts has a different set of account holders.
* Many banks keep coming up with FD promotions; stay alert for such promotions as you may end up with higher interest rates than normal or with gifts that are “value-for-money”.