Fixed interest savings products in Malaysia are termed fixed deposit accounts or in some cases, time deposits. We will take a quick look at the types of fixed deposit accounts, their chief characteristics, the benefits they provide and points where you would be advised to exercise caution.

Conventional Fixed Deposits

They offer a guaranteed rate of return based on the tenor of investment. Their tenor may vary from 1 month to 60 months depending upon the issuing bank and the particular product. Terms and Conditions (T&C) relating to minimum deposit amount, tenor, premature withdrawal, gifts, partial withdrawal, periodicity of interest payments etc vary from bank to bank.

You are advised to carefully go through the T&C before deciding upon a product that is most suited

to your present requirements.

# Interest may be paid monthly/half-yearly/upon maturity depending upon the bank and the T&C.

# Fixed deposit interest rates range between 2% to 4% depending upon tenor. There are also promotional instances of banks offering upto 6% interest rates on fixed deposits, opened during the promotional period.

Islamic Fixed Deposits

The following types of fixed deposits are available under Islamic Banking:

Mudharabah Deposits: Under this concept the customer/depositor will invest money with the bank for a fixed duration. The bank as the manager or Mudarib will invest the monies in Sharia-compliant avenues. The profits 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 month-on-month.

Murabahah Deposits: Murabahah refers to buy/sell contracts at cost+profit mark-up (both cost and profit are disclosed). Murabahah fixed deposits involve purchase and sale of assets between 2 parties (known as Bai Al-Enah) or involving multiple parties (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. Here, the bank acts as the Agent in charge of your funds. As your agent, the bank (Wakil) will manage and invest your funds in Sharia-compliant investment activities to deliver “expected rate of returns”.

Foreign Currency Fixed Deposits

These deposits have become popular since the liberalization of the Foreign Exchange Administrative Rules on the 01st of April 2005. Savvy investors use them for hedging purposes and for earning a higher interest than on normal fixed deposits.

They are also popular with those who have foreign currency earnings, wish to invest overseas, have business interests outside Malaysia and with people who wish to educate their children oveseas.

– 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.

* All the above types of fixed deposits are eligible for PIDM protection upto a limit of RM250,000 per depositor per member bank.

Benefits of Fixed Deposits

• Interest rates are higher than for savings accounts.
• Interest payment is guaranteed and protected from interest rate fluctuations.
• Persons in their individual and joint capacity as well as businesses, associations, clubs, trusts etc can open Fixed Deposit Accounts.

Caveat Emptor

• Check for hidden fees and charges.
• Read the premature withdrawal clause(s) carefully to avoid stiff penalties.
• Access to funds may be limited or not available until the account maturity date.
• Check if the interest earned is subject to taxes like the Withholding Tax.
• Mudharabah fixed deposits do not guarantee the principal amount. Moreover, if a loss is incurred, the depositor/investor bears the entire amount of the loss.
• Investments in Wakalah deposits are not guaranteed to deliver “expected returns”.
• Investing in foreign currency is subject to exchange rate risk.
• Foreign currency accounts and their account-holders are subject to the guidelines under/issued by the Exchange Control of Malaysia (ECM) Notices and Bank Negara Malaysia.