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9 Questions About Fixed Deposit to Ask Before Investing

Updated 01 Oct 2019 – By Nisya Aziz


To those who are looking into investing in fixed deposit also known as FD, you must've got a lot of questions to ask - which is not something to be embarrassed about. It’s the only way to learn, right? Here are some of the common (read: IMPORTANT) questions asked with answers, when it comes to fixed deposits.


1. Can you make money with fixed deposits?

Fixed deposits are different from stocks and unit trusts. The returns aren’t that great because the interest rates are usually low - between 3% to 4% p.a. (or can be slightly higher).  But, if you’re looking for something less risky then the fixed deposit is the way to go. 

These investments don’t need you to be too involved or hands-on. All you have to do is sit and wait for the deposit to mature. For example, you deposit RM6,000 for 6 months and the interest rate is 3.7% p.a. - you’ll earn RM111, which is still profitable.



2. Is fixed deposit better than a savings account?

The answer is both YES and NO. Yes, because the deposit offers you much better interest rates than a savings account. FYI, the average interest rate for a savings account is 1.2 p.a. (based on a comparison of 30+ savings accounts across all major banks in Malaysia as of June 2019). This means that if you have RM6,000 in your savings account, you’ll only earn RM72 per year. But with the fixed deposit, you could’ve earned RM222 per year (according to the example in point1).

No, because you can’t access it as easily as you could your savings account. If you have a separate emergency fund, you should be careful about putting the money in a fixed deposit. Fixed deposits are less liquid than money in your regular savings accounts or money invested in bonds. Which means that if an emergency occurs, you don’t want to have to withdraw your fixed deposit before it matures, resulting in a loss in returns.


3. Is it available to foreigners?

Yes. There are plenty of fixed deposits in Malaysia that are open to Malaysian citizens, permanent residents, and foreign applicants. Fixed deposit accounts offered by CIMB are a prime example.

Foreign applicants could also apply for Foreign Currency Fixed Deposits. These deposits are usually available for tenures of up to 12 months. Investing in such deposits allows you to hedge against inflation and keep the currency in the account until the exchange rate is more suitable.


4. Is it suitable for retirement?



No doubt that fixed deposit is great for your investment portfolio. Plus, it does offer security and a guaranteed rate of return. Nevertheless, to rely solely on them for retirement wouldn’t be the best idea because the returns itself is not as much as other retirement schemes.

There are plenty of retirement schemes available in the market and those looking to start a retirement savings fund should reach out to a financial adviser or investment adviser for better guidance. Many insurance providers offer retirement plans that help you accumulate a sufficient nest egg for retirement.

READ: 3 Things You Need to Know for Retirement Planning in Your 30s


5. Is there any added advantage to having a fixed deposit?

YES. Apart from the fact that it is one of the safest forms of investment, it helps in diversifying your portfolio and softens any impact that underperforming assets might have.

Not only does fixed deposits stabilise your investments, but it also acts as an instrument of credit. Many banks offer you personal lines of credit, overdraft facilities and even credit cards when you put up your fixed deposit amount as collateral.
 

6. How much money will I have to deposit?

Fixed deposit requires a minimum deposit amount, but this usually depends on the tenure you choose. Tenures of 1 month have a higher requirement, though tenures above 2 months are more affordable.

For example, the Maybank Fixed Deposit Account has a minimum deposit requirement of RM5,000 when you choose a tenure of 1 month. For tenures of 2 months or more, your minimum deposit amount drops down to RM1,000.

Apart from what you can afford, you should also look into what you can set aside. There’s no point dumping all your cash in a fixed deposit account and leaving yourself vulnerable to unforeseen expenses. You need to have a certain level of liquidity to meet your daily requirements.

READ: Here are the Best Fixed Deposit Promos in Malaysia 2019


7. How safe are fixed deposits?



Very. Most of us know that our deposits are insured by PIDM for up to RM250,000 in case the bank fails. But what’s interesting is that you can have a cover of RM250,000 per account per bank that you deposit in.

Even when depositing with the same bank, you can get an insurance cover of RM250,000 each if you have these distinct types of accounts: conventional FD, Islamic term deposit, joint-name accounts, trust accounts, and sole proprietor accounts. PIDM also insures deposits for Malaysians and non-Malaysians alike. 


8. What happens when a fixed deposit matures?

Depending on the fixed deposit account you have chosen, you may either have the deposit and interest credited to you or you could have it automatically renewed. For instance, Maybank and CIMB both offer eFixed Deposits that have automatic renewals.

Some deposits give you the option of automatically renewing your initial deposit amount and withdraw the interest earned, or you could choose to renew the deposit plus the earned interest.

Do keep in mind that automatic renewals may not necessarily enjoy the same rates of interest. You should make it a point to properly compare the various fixed deposit accounts available to see which offers the best rate, before opting for the renewal.
 

9. What happens when I need to withdraw it?



With life being as unpredictable as is, there'll be times when you need to withdraw your fixed deposits to meet some other unforeseen expense. Some deposits allow you to make premature withdrawals. Fixed deposits offered by Maybank and Alliance Bank allow you to make partial withdrawals. Depending on how early in the tenure you make the withdrawal, you can either get some interest or no interest at all.


Are you ready to give it a go?

Fixed deposit is a great investment tool for beginner investors and seasoned veterans alike. You simply have to put the amount in and wait for it to mature. Settling on the right amount, the right tenure, and above all, doing the research and choosing an account offering the highest rate of interest will ensure that you make the most out of your investments.

Good luck!


 
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