Fixed deposit (FD) is a deposit made on a special type savings account that reaps you a fixed interest over a fixed time period on the principal investment that you made. The investor is not privy to access the amount deposited in a fixed deposit account before it matures or reaches the mutually agreed tenure. Fixed deposits are also called term deposits or time deposits as they have a fixed time period of maturity attached to them.
Although, there are some standout FD accounts that do allow you to partially withdraw your deposit and offer more financial flexibilities. Some even let you decide your own tenure and how you want the bank to pay interest. Retirement FD accounts also have a lot of patronage in Malaysia, where the tenure is spread over your professional career and a higher interest rate is paid on your maturing deposit.
Benefits of Fixed Deposit
- As it provides you guaranteed return on your investment, FD is a stable way to deposit and avail high returns upon maturity date.
- Fixed deposits in Malaysia are insured by a government-regulated agency that can protect you from frauds or market influences. So, unlike a usual investment account, security is more and the risk involved is almost nil.
- FD is a great way to get a return on your savings. Not only that, you can avoid the tax deducted at source (TDS). Yes, this can be done by opening multiple fixed deposit accounts for yourself or in the name of your family members.
- Flexible fixed deposit accounts also let you determine the tenure or time period through which you want your deposit to earn interest. By choosing rollover principal and taking interest returns, you get a stable mode of payment over your preferred timeline.
- While premature withdrawal is not allowed, you can decide when to withdraw your money anytime you want (or a portion of it) by choosing the right FD plan beforehand. Pay attention to the fine print provided by the bank while you apply for a fixed deposit account.
- Despite the need for your deposited money to mature before withdrawal, you can withdraw the amount you want almost instantly with proper documentation. The bank may charge you an early termination fee, but the point is you can withdraw your original deposit at will!
- When your original investment matures, you can transfer the fixed deposit funds to another bank that might earn higher rate of interest.
Calculation of Fixed Deposit Interest
When you decide to invest in fixed deposits, the single most important thing you need to take note of is the interest rate that is responsible for your returns. The pattern goes like this: The interest you receive will increase if the tenure you choose is longer. And similarly, for a short term of fixed deposit, you will be paid a lower interest.
But there are banks where you find exceptions with respect to short-term deposits. Some banks offer lucrative interest rates even for a shorter tenure, provided that customers meet a few predefined conditions. If your premium deposit amount is considered to fall on the “high amount deposit” by the bank, you may receive great returns.
All that said, the formula for calculating interest on your fixed deposit is pretty straight forward:
Original deposit x Rate of interest (tenure in months/12 months) – Original Deposit = Interest you earn.
So, if your deposit is RM12,000 at an interest rate of 4% p.a. for a 6 month interest period, the interest you get paid would be:
[12,000 x 4 (6 months / 12 months)] – 12,000 = RM242
If all these calculations confuse you, you can very well use the fixed deposit calculator offered by Malaysian financial aggregator sites like Ringgitplus and iMoney. All you have to do is enter your deposit amount, rate of interest, and the preferred tenure over which you want to receive the interest. These intelligent online FD calculator tools churn out your projected gains/returns in no time!
If calculators don’t provide you with a clear picture of what you want, banks like Hong Leong Bank present charts for various monthly tenures and the respective interest rates that they offer. This can save you from scooting around for what you are slated to receive on your desired tenure, after you decide on the amount that you would be depositing in FD.
Importance of Fixed Deposit
FD is an extremely effective way to inculcate the habit of planning and investing for the future. In a world full of massive financial uncertainties, fixed deposit is one of the most safer ways to save intelligently without any risks and without affecting your investment portfolio.