Fixed Deposits (FD) or Time Deposits are accounts that offer a fixed, guaranteed rate of interest for a fixed time period. Fixed Deposits have remained very popular amongst Malaysians despite the emergence of several, new investment products. Here are a few tips for making the best of your fixed deposit investments:
Understand the types of Fixed Deposits on offer – The following types of fixed deposits are offered in Malaysia: conventional, guaranteed-return Fixed Deposits, Islamic Fixed Deposits and Foreign Currency Fixed Deposits for the investor who is prepared to risk exchange rate fluctuations for higher returns. Understand the nature of each of these deposit categories and use them appropriate to your investment goals.
PIDM protection – Ensure that your Fixed Deposit investment is eligible for PIDM protection. This protection extends to all types of bank fixed deposits up to a limit of RM250,000 per depositer per member bank. If your investable corpus is more than this amount, you can still get PIDM protection for the entire sum by breaking up the sum under different accounts like joint accounts with your mother, father or spouse. Under PIDM rules such joint accounts are also eligible for separate protection up to RM 250,000 each provided that each of the joint accounts has a different set of account holders.
FD Promotions – One way of enjoying higher interest rates on your FDs is by investing through promotions. Even if you don’t get higher-than-standard interest rates you could get “value-for-money” gifts.
Kids / Senior Accounts – Kids and Seniors’ accounts generally tend to give slightly higher rates of interest on FDs. So, try and park your money in your child or parent’s name especially if it is a substantial sum and you wish to invest it for a longish period of time. The extra interest earned is not to be sneezed at.
Cooperative Bank Deposits – These provide some of the best FD interest returns available in the market. For example, a one month (minimum RM 1,000) deposit with MBSB provides 3.3% returns; the Bank Rakyat Deposits Account-i provides a return of 3.6% for a 3-month deposit with a minimum deposit of just RM 500.
The drawback is, these deposits are not eligible for PIDM protection; you will, however, get protection from the Ministry of Finance under the Development of Financial Institutions Act (DAFIA).
Very short tenors – If you are foreign exchange-savvy use Foreign Currency Fixed Deposits as they offer very short-range tenors ranging from overnight to a week or a couple of weeks. Conventional deposits are only available one month onwards.
Partial Withdrawals – Most banks levy a penalty fee on premature withdrawals and you may even lose the interest accrued. But what are you to do if you require emergency cash? Check for an FD that permits partial withdrawals.
Overdraft Facility – Another way of accessing emergency cash is through an overdraft collateralized against your FD.
Automatic deposit renewal – Wouldn’t it be nice if your FD gets automatically renewed upon maturity? Or, the profit/interest is credited to your savings or current account while the principal gets renewed. Check for an FD that allows you to “program” what happens on its maturity.
The Citibank Time Deposit allows you to make partial withdrawals in multiples of RM5,000 while the remaining balance continues to earn the original rate of interest. You also have the option of pledging your Time Deposit for an overdraft facility. And, by default, your deposit together with the interest earned is automatically renewed.