Fixed deposits or time deposits are fixed interest savings products. These accounts offer a fixed and guaranteed rate of interest on the amount deposited, for a fixed tenor. Fixed deposits, in general, offer much more attractive rates of interest than standard savings accounts while their guaranteed nature provides a favourable comparison to other high-risk, high-return investment products; this accounts for the popularity they have enjoyed with generations of Malaysians. Here, we will examine some of the different types of deposit accounts in Malaysia:
Conventional Fixed Deposits
These deposits offer a guaranteed rate of return which depends upon the tenor of deposit. Tenors, generally range from 1 month to 60 months. Clauses governing the various features of deposits like minimum deposit amount, tenor, premature / partial withdrawal, periodicity of interest payments etc differ from product to product and bank to bank.
Fixed deposit interest rates range between 1% to 4% depending upon tenor. There are also promotional instances of banks offering upto 6% interest rates on fixed deposits opened during promotional periods.
Foreign Currency Fixed Deposits
These deposits can be opened in a range of foreign currencies. You can either directly deposit foreign currency or open them in Ringgit which are then converted into units of the foreign currency of your choice. These deposits were introduced following the liberalization of the Foreign Exchange Administrative Rules on the 01st of April 2005.
▪ They are used by those who have foreign currency earnings, wish to use them for hedging, wish to invest overseas, wish to fund their children’s education overseas, have business interests outside Malaysia or wish to earn higher interest than on normal fixed deposits.
▪ Tenor varies from 7 days to 12 months.
▪ Interest rate earnings could potentially go up to 8%+ (as it has in the past).
▪ Interest is paid upon maturity.
Islamic Fixed Deposits
These are Shariah-compliant deposit products. The following flavours of fixed deposits are available under Islamic banking:
Mudharabah (or profit sharing) deposits – The customer invests money with the bank for a fixed tenor. The bank as the manager or Mudarib will invest the money in Shariah-compliant ventures. The profit will be shared between the customer and the bank as per a pre-determined profit sharing ratio.
▪ There are three types of Mudharabah Deposit contracts of which, the Mudharabah General Investment Account (MGIA) is the most popular, especially amongst individual investors.
▪ Profit is calculated on monthly basis. Hence returns from the investment may vary from month to month.
Murabahah (profit mark-up) deposits – These deposits involve purchase and sale of assets on a cost + profit mark-up basis with the deposited money. When such contracts involve two parties they are known as Bai Al-Enah and when they involve multiple parties they are known as Tawwaruq or Commodity Murabahah. Bai Al-Enah deposits use a wide range of assets (Sharia-acceptable) excluding gold and silver while Tawwaruq Deposits use “Halal” commodities.
▪ Profit rate is pre-determined; it may be paid upfront or on a deferred basis depending upon the tenor of the deposit.
Wakalah Deposits – They are very similar to Contracts of Agency. The bank (Wakil) will manage and invest the funds deposited by you in Shariah-compliant investment activities to deliver “expected rate of returns”.
All the above types of fixed deposits are eligible for PIDM protection upto a limit of RM250,000 per depositor per member bank.
Cooperative Bank Deposits
These are fixed deposits invested with cooperative banks. They have tended to provide higher returns (with comparatively low minimum deposit requirements) than conventional banking deposits. Unlike the above types of deposits, they are not eligible for PIDM protection; you will, however, get protection from the Ministry of Finance under the Development of Financial Institutions Act (DAFIA).