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7 Advantages of Having a Fixed Deposit Account

If you’re looking for a way to build your savings with a guaranteed return of your invested capital, a fixed deposit is a good conservative avenue!

It offers a reasonable interest rate depending on the amount and tenure, but before you jump in and apply for one, let’s look at the advantages. Head over to this article if you are totally new to fixed deposit.

Benefits of Fixed Deposit

1. Investment Return is Guaranteed

One of the worries when investing is: “Will I get my money back?” Unlike investing in stock markets or the commodity market, a fixed deposit guarantees money back at the end of the tenure. All you need to do is wait for your returns to mature.

2. Capital and Returns are Insured

If you’re worried about risking your money, don’t be. Fixed deposits in Malaysia are regulated by Perbadanan Insurans Deposit Malaysia (PIDM), a government agency designed to protect and avoid the loss of money by depositors.

3. Inflation Loss is Covered

The interest rates highly depend on the bank you’re applying from. Banks offer competitive interest rates for fixed deposits compared to a regular savings account which could help compensate the annual inflation rate.

4. Regular Earning Potential

You earn an interest rate with the money you deposited over a fixed time. This happens monthly, quarterly or yearly. There are banks which allows you to deposit or transfer the interest you earned to your preferred bank. This means, while you will not be able to withdraw your money until the tenure ends, you get to earn money through interest payments, provided you selected the maturity instruction of rollover principal and withdraw interest return.

5. Flexibility of Deposit Tenure

The fixed deposit has flexible terms; you can choose a short-term fixed deposit which you can withdraw within a month or a long-term where you wait for years until it matures. Banks vary in tenure criteria, so be mindful when selecting the tenure suitable for you to avoid premature withdrawals.

6. Quick Cash Withdrawal

Unlike other investments like stocks and unit trusts, which may require a few days to cash out, an FD can be cashed out anytime upon you presenting yourself to the bank with valid documentation. To reap the best returns, wait for your invested money to mature.

7. Encourages Saving Habit

If you want your money to grow and not risk penalty fees when you break your agreement, then having a fixed deposit helps develop a good habit of saving by avoiding the temptation of withdrawing your funds under the agreed period.

Managing Your Fixed Deposit

It is important to consider the financial aspect of a fixed deposit before you get one. Some people enjoy the interest they reap once maturity is attained, but if there’s a possibility that you may withdraw your money early, you might want to think about the investment term.

You may also want to keep in mind of your fixed deposit maturity date. When your fixed deposit matures and the new interest rate is lower, here are alternatives you can consider:

  • Request for a higher interest rate (Only if you have a long-term relationship with your bank)
  • Reinvest in a new bank or account that offers a higher interest rate
  • Deposit in special or promotional savings account with higher interest rates (T&Cs may apply)
  • Invest in other financial instruments

Final Word

With its advantages, investing in a fixed deposit can provide a good income stream throughout the life of the investment. Although fixed deposits have low-interest rates compared to other investment tools, the security and guaranteed return make fixed deposits an ideal option for those who want a more conventional way of earning more money.

Did you know that investing in a foreign currency fixed deposit offers a higher interest rate? Read our post to know about all the benefits of an FCFD.

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