There are many ways to make your money work for you. There’s the stock market as well as different kinds of investments. Plus, there are several financial products offered by banks. However, most of them are accompanied by various levels of risk. Fixed deposit accounts are considered the odd-one-out among this lot. Being halfway between a money-earning instrument and an ordinary bank account, fixed deposit accounts are best meant for those just starting out in the world of investment.
In a fixed deposit account, you have to keep your money in the bank for a fixed amount of time. The bank lets you earn higher interest rates for fixed deposits than for regular deposits. Here are a few tips to help you take advantage of the account’s unique features.
- Mind the investment period. Most banks usually offer fixed deposit periods of anywhere from a month to 5 years. Remember that until this period ends, you will only be able to withdraw your money if you are willing to lose the interest rates. This is the main difference between fixed deposits and regular bank accounts.
This is also the main point of misunderstanding when it comes to fixed deposit accounts. Contrary to popular belief, your money is not frozen. These accounts are actually very liquid. Instead, you will lose the whole point of the investment if you withdraw early (i.e., you lose the interest). Hence, it is important to ensure you will not be needing the amount you will be committing to the fixed deposit.
- Mind the interest rates. Generally, you will earn a higher interest rate the longer you keep your money in the bank. This is a fixed rate, and will not change regardless of how the market goes. This is its main advantage over other investment platforms. In the same way, a higher principal means a larger amount of earnings based on the interest rates.
However, different banks have different rates. There are some Malaysian banks that offer anywhere from 2.6% to 3% and above interest depending on the length of time the money remains with them. It is important to compare the rates of different banks depending on your chosen investment period, to determine which works best for you.
- Mind the fees. Like in every banking instrument, fixed deposits are not exempt from various fees. These are the ones that eat into the final earnings. There are monthly maintenance fees, taxes, ledger fees, and much more. In case you run into a financial emergency, it is also important to know the fees for closing your account before maturity. All these should be taken into account when comparing various tools.
Fixed deposits are among the safest money-making instruments due to their stable interest rates. As a plus, they can also be pledged as a loan security for some banks. The main disadvantage here is the relative inflexibility of the deposit. You have to keep it until it matures, lest you lose the interest. Also you cannot add into it when you wish, like a regular bank account.
Fixed deposits are also among the most overlooked of all money-making instruments. But by understanding its ins and outs, you can make it work as a valuable, low-interest part of your investment portfolio.