Fixed Deposits

Risk Free Investments: Top 3 Fixed Deposit Plans

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Ryan Ong

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Fixed deposit accounts are like health food: good but unappealing. Banks typically find them a hard sell, since most people like having their money where they can reach it. Then there’s worries about emergency funds, which fixed deposits get in the way of. In light of all this, what can Fixed Deposits really do for the average Singaporean? MoneySmart finds out about the 3 best Fixed Deposit Accounts.

 

What is a Fixed Deposit Account?

A fixed deposit account (or time deposit) is like a bank account with a lock-in period: once you deposit the money, you can’t withdraw it for a time. Alternatively, you may be able to withdraw the money, but lose the benefits. In Singapore, most Fixed Deposit Accounts are for up to three years.

As an upshot to this, the bank guarantees to pay you a fixed interest rate for the duration. Once the fixed deposit matures, you get back your initial deposit plus the interest.

Think of it as a more stable alternative to investment schemes.

 

jackpot machines
“I have investment ideas. A whole row of them.”

 

Why use a Fixed Deposit?

Because apart from accessibility and security, the bank confers nothing else on your savings. A POSB Current account, for example, doesn’t pay out any interest. Of course, having a bigger deposit can change that; but unless you’re throwing around sums that would make a small casino sweat (above $900,000), don’t bet on ever seeing interest beyond 0.25 – 0.75%.

Just for comparison, fixed deposits can reach amounts of 1.15%. The rates vary based on the duration, the amount you put in, and what the banks are currently offering.

Considering the rate of inflation, a regular savings account leaves you on the same level as the guy hiding money in old socks.

 

Pros and Cons of Fixed Deposits

The upside:

  • Higher interest rates than typical savings accounts.
  • Forces you to save money, in case you’re the spendthrift sort.
  • The interest rates are fixed, and won’t fluctuate based on the market.
  • It is more reliable than investing in stocks or commodities.

The downside:

  • There is a loss of liquidity, as the money is committed for the duration. Fixed Deposit Accounts are bad choices if your cash flow is inconsistent (e.g. small business start-up)
  • The interest rates are fixed, which means they don’t get higher with market fluctuations either.
  • Fixed Deposit Accounts are more vulnerable to currency fluctuations. The interest rate is untouchable, but you will still lose money if the Singapore dollar drops.

 

Bald head with "emo" written on it
“With a lot of luck, he’ll mature before his trust fund does.”

 

*Note that all tables in the following examples are accurate as of 9 / 4 / 2012. Rates are subject to change. 

RHB Singapore Dollar Time Deposit

This sample scheme by RHB features a high interest rate. We’re assuming an initial deposit of up to $49,999, but if you have more, expect better growth. This kind of scheme works best if you’re sitting on a pile of money, and are too risk-averse to stick it in a business.

 

Months

Interest

 (Based on initial deposit of up to $49,999)

1

0.1875

2

0.2500

3

0.3125

6

0.3750

9

0.5000

12

0.6250

 

OCBC Singapore Dollar Time Deposit

OCBC’s scheme used to popular, because you could use your CPF money to invest in it. That isn’t true any more, but it’s still a decent interest rate. Note the small initial deposit; $5000 – $20,000 is a realistic amount, if you haven’t earned that first million yet.

 

Months

Interest

(Based on initial deposit of $5000 – $20,000)

1-2 months

0.0500

3-5 months

0.1000

6 months

0.1500

7 to 8 months

0.1500

9 – 11 months

0.2000

12 – 15 months

0.2500

 

DBS Singapore Dollar Time Deposit

DBS’s interest rate isn’t the fastest, but this is one of the most accessible savings schemes. The minimum to get started is just $1000. This is great for a student who’s looking to pay off tuition loans at the end of a degree course. It’s also good for young parents looking to store funds for the near future.


Months

Interest

 ($1000 – $9999)

1 – 11 Months

0.0500

12 Months

0.7500

18 Months

0.1000

24 Months

0.1250

 

If you’re not looking to a major purchase at some point, Fixed Deposit Accounts are the best way to go. It’s also the best place to grow a nest egg. While it’s a real pain to lose access to your money, you’ll be glad you did later. And it’s not as if the payoff takes as long as the CPF.

Image Credits:

Images_of_MoneyprayitnoMike Burns, Images_of_Money (Thumbnail)

Do you have a Fixed Deposit Account? What rates do you think banks should be giving?

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Ryan Ong

I was a freelance writer for over a decade, and covered topics from music to super-contagious foot diseases. I took this job because I believe financial news should be accessible and fun to read. Also, because the assignments don't involve shouting teenagers and debilitating plagues.