Fixed deposits (FDs) have been a very popular investment choice for Malaysian and all banks offer different flavours of this evergreen product. Let’s examine a few reasons why fixed deposits should form an integral part of your portfolio / savings:
High interest rates
Fixed deposits provide a significantly higher rate of returns than savings accounts. Here are a few tricks of the trade to help you earn even higher returns:
Junior / Senior FDs – Many banks provide Fixed Deposit products targetted at the children’s and seniors’ categories. These deposits carry a higher rate of interest than on standard deposits. You could try parking some of your surplus funds in in FD accounts in your children’s or parent’s names.
Cooperative bank deposits – Cooperative deposits enjoy the reputation of providing some of the best FD returns in the market and for short tenors as well. For instance, the Term Deposit Account-i from Bank Rakyat provides a return of 3.7% for a period of 3 months. And, the minimum deposit requirement is just RM500.
Foreign currency fixed deposits – The liberalization of the Foreign Exchange Administrative Rules (on the 01st of April 2005) has made these products popular. They are available for tenors as low as 7 days and provide potentially higher rates of return than on standard fixed deposits. The trade-off here is foreign exchange risk.
Longer tenors – Fixed deposits provide higher rates of return when the funds are parked for longer periods.
Promotions – Banks, sometimes offer higher than normal interest rates during promotional periods. Watch out for such promotions but also remember to go through the fine print thoroughly.
All fixed deposits provide guaranteed rates of return which is one of the reasons why they’ve become so popular. So, you can rest assured knowing that at the end of the maturity term you will get the returns you were promised. This is unlike most market-related investments.
Moreover, fixed deposits enjoy PIDM protection. Under PIDM you can enjoy separate protection of up to RM250,000 for each of the following types of accounts: conventional and Islamic deposit accounts, joint accounts, trust accounts and accounts held by sole proprietorships, partnerships, professional practices and companies. However, cooperative bank deposits do not enjoy PIDM protection.
Newer flavours of FD products
Unlike traditional fixed deposits there are a number of current fixed deposit products that offer more flexibility and options to customers. These include:
Partial withdrawals – With traditional fixed deposits, you will generally not get a sen if you withdraw before the maturity date. However, newer FD products give you the option of making partial withdrawals while the remaining corpus continues to earn interest at the original rate.
Overdraft facility – You could also get an overdraft facility collateralized against the fixed deposit.
Automatic deposit renewal – Your fixed deposit is automatically renewed on maturity for a similar tenor. Or, the interest is credited to your savings or current account while the principal gets renewed. In fact, you can “program” beforehand what happens on your FD’s 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.
Step-up fixed deposits – These fixed deposits split the deposit tenor into periods and offer different rates of interest for each period. The interest rate offered during successive periods becomes higher till it reaches the highest interest return / advertised rate during the final period. Standard Chartered Bank offers such deposits.