There are many misconceptions about Fixed Deposits accounts, so in this article we’ll explain the basics to help you understand how they work and whether you should invest in one.
What Are Fixed Deposit Accounts And How Do They Work?
A Fixed Deposit or ‘FD’ is a type of account that promises the investor (you) a fixed rate of interest in exchange for depositing a certain sum of money for a certain period. When you open an account, you also have the option to choose a tenure (otherwise known as a ‘term’). Each tenure comes with a predetermined interest rate and the longer the tenure, the higher the interest rate offered will be.
For example, if you opened a $10,000 fixed deposit account with a 12-month tenure and are offered a 3.15% p.a interest rate, you will receive $315 upon maturity.
It’s generally regarded as a ‘safe’ form of investment compared to Stock trading and less tiring than some money-saving challenges.
What If I Withdraw My Funds Halfway?
If you access your funds before the tenure ends, you could lose part or all of your interest.
Which is why we highly recommend considering if you will need disposable funds in the foreseeable future then plan your tenures accordingly. Otherwise, an early withdrawal could make you lose thousands of dollars in interest earnings.
Another option is to open multiple accounts with different tenures, as there is no limit to the number of accounts you can have. For example, you could place $10,000 on a 2-year tenure and $20,000 on a 1-year tenure, so that your money is more accessible.
Now that you understand what fixed deposit accounts are and how they work, let’s dive straight in and take a look at the best fixed deposit offers in the market right now.
1. DBS Bank
Still offering the highest fixed deposit interest rates, DBS continually trumps over their competitors with consistent rates even with the pandemic ongoing.
A reasonable tenure of 18-months will net you 1.3% p.a even if starting out with just $1,000, so it’s easy to see why they are the go-to institution for opening fixed deposit accounts.
Not the most prominent in terms of marketing and presence in Singapore, Maybank still offers a pretty decent interest rate of 1%. The catch is you would have to leave your funds in the account for 36 months to earn that 1%, so only invest after you’ve done your calculations!
3. RHB Bank
Like it’s Malaysian counterpart, RHB bank offers just about the same fixed deposit rates as Maybank. Likewise, you’ll need to commit to a long 36 month tenure just for that 1% which isn’t feasible even if you’re not tight on cash.
It’s 0.55% fixed deposit rate isn’t something to shout about, but Chinese bank ICBC edges out its competitors by requiring just $500 to start a fixed deposit account. So if you’re looking to dabble in a savings account and have cash to spare, then this could be a possible option for you.
5. Hong Leong Finance
Apart from banks, you can also take a look at what other financial institutions like Hong Leong Finance offers. They won’t be able to compete with the bigger players but you may be surprised with some of their offer promotions.
For example, they are offering 0.65% for a 24-month tenure with $20,000 deposited, which is almost competitive.
As you can tell, fixed deposits aren’t for everyone and like every other investment option comes with advantages and disadvantages.
To help you make your mind up on whether you should be putting your money into a fixed deposit, we’ve listed out some key considerations.
1. Fixed deposits give guaranteed returns
Unlike Forex or stock trading, they do not suffer from price volatility
2. Higher interest rates than ordinary savings accounts
Still using the same POSB savings account your parents helped you set up? It would be good to switch to a fixed deposit account as they generally offer more interest earnings than savings accounts
3. Virtually risk free
For smaller deposits, fixed deposits are virtually risk-free. You can almost be assured of getting your initial deposit plus interest earnings back from the bank. In addition, the Singapore Deposit Insurance Corporation (SDIC) actually ensures deposits of up to $50,000 are insured.
1. Low returns
As you may have realised, the main con of fixed deposits is the low interest rate compared to higher yield investment options like REITS and stocks
2. Inability to add more money into an FD
Once you have your locked your initial deposit in the account, you will not be able to add more funds in
3. Early withdrawal penalties
If you need to access your funds before the agreed tenure period ends, you may have to pay a penalty or have the interest forfeited
And there you have it, we hope you’ve learnt more about fixed deposit accounts and can make an informed decision on whether you should invest in one. Whether or not these accounts are the best is entirely subjective, the returns are not the highest compared to other options but it’s still popular among new investors as anyone can open an account.
A final word from our writer – fixed deposit interest rates fluctuate and it’s common for other institutions to offer limited-time promotions, so keep your eyes peeled and options open before committing to any account!
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