Should You Open a Fixed Deposit Account?

Kali terakhir diperbaharui September 26, 2023 oleh Shafiq Wahab
Should You Open a Fixed Deposit Account?

A fixed deposit is a type of bank account that allows you to save for a set period of three months, six months or 12 months depending on your needs. Basically, you agree not to tamper or withdraw the funds for a certain period of time and you will receive a fixed rate from the bank when the period matures in return.

5 Reasons Why You Should Invest in Fixed Deposits

Fixed deposit investments can be used for emergency purposes or short-term objectives such as paying a deposit to buy a house, education costs and so on. Fixed deposit savings are generally less suitable for long-term investments. If you want to grow funds for the long term, you are advised to save in other financial instruments such as Share Trust Units or Employees’ Provident Fund (EPF).

1. Easier Access to Money

Investing in fixed deposits offers many advantages. Among the advantages of investing in fixed deposits is that you can access your money more easily than other investment products at any time. This is because fixed deposit savings are easier to liquidate. This means, your money can be withdrawn quickly if there is an emergency case such as a car breaking down suddenly and needing money for repairs.

However, you need to be aware of this – if you withdraw your savings early or before maturity, you may lose some or all of the interest you should have received. For this reason, you are advised to know and understand the conditions of withdrawal to prevent you from experiencing losses due to loss of interest.

Divide Fixed Deposit Savings into Several Smaller Accounts

If you want to invest your savings in a fixed deposit, consider dividing it into several smaller accounts. For example, if you want to save RM10,000 for a period of six months, you can save RM2,000 in five different accounts.

In this way, you can secure the return or interest of your savings balance in four other accounts if you decide to withdraw part of the emergency savings.

2. Does Not Require Deep Knowledge

Even if you don’t have basic financial knowledge, you can still invest in fixed deposits. This is because fixed deposit investments allow you to enjoy guaranteed capital returns. However, unlike investing in shares or unit trusts, you need to have sufficient knowledge and know-how in addition to needing to do a thorough study to identify prospects that provide maximum profit. If you make a mistake, you may suffer a loss.

3. Better Rate of Return

If you compare the return of a fixed deposit with the return of a regular savings account, a fixed deposit promises a higher rate of return. However, it is subject to certain situations and conditions. You need to leave the money undisturbed for the agreed time period to maximize returns. If you decide to withdraw your savings before maturity, you may experience a loss of interest.

Therefore, you are advised to set the investment period depending on the suitability and the possibility that you will use the savings during that period. In other words, choose an investment period where you are sure you won’t need to withdraw the savings early.

Savings Account vs Fixed Savings Account

Basically, a fixed savings account is the same as a regular savings account – both are low-risk investments. However, the main difference between these two savings is the interest rate. Fixed deposit accounts offer higher annual interest rates usually around 1.4 percent to 2.4 percent. Meanwhile, regular savings accounts offer annual interest rates between 0.2 percent and 1.5 percent.

However, there are some savings accounts that offer the same (or higher) interest rates than fixed deposit accounts provided that you have a high deposit amount, use your account to pay certain bills or pay a minimum amount using a debit or credit card each month. . You can consult your bank for more info.

4. Guaranteed Fixed Deposit Profit

If you are someone who has a low level of risk tolerance or want a certain return, fixed deposits are one of the right investment options for you. This is because, you don’t have to fear loss or worry about any investment risk. From the very beginning, you can know the approximate amount of return you will receive depending on the investment period you choose. Banks usually display their accepted interest rate structure on their website.

Usually, the stated interest rate is written based on an annual interest calculation (% per annum). This means, you need to divide by 12 and multiply by the number of months your money is invested to find out the estimated return that may be received. Although the amount of return received may be lower than the result of investing in the stock market, but at least the profit is guaranteed and you do not have to worry about any risk of loss or the like.

5. Protected Investment

In addition, savings in fixed deposits are risk-free investments. This means, the capital you invest is guaranteed by Perbadanan Insurans Deposit Malaysia (PIDM) up to RM250,000. PIDM is a government organization that will make refunds to depositors if the bank is unable to make refunds.

Therefore, if you want to deposit more than RM250,000 in a fixed deposit, you are advised to open a fixed deposit account from a different bank. This is because each bank account is eligible for protection of up to RM250,000. In this way, it can reduce your risk of losing your money if the bank goes bankrupt or is unable to make payments to depositors.

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