In Islamic Banking, the equivalent of the Fixed Deposit (FD) is known as the Term Deposit. For most people, a term deposit account has always been a safe place to keep your money and receive guaranteed returns as they have fixed profit rates which tell you how much money you will earn at the end of a fixed number of months or years.
While the returns are usually not that impressive, it is affected by the overnight policy rate (OPR) which is increasing. The OPR has been raised by 100 basis points (bps) in 2022 to 2.75% and more increases are expected next year.
For most people, the increase in OPR would mean higher profit in terms of financing (housing, cars, etc,). However, there is a positive outcome for those who invested in term deposits as higher OPR rates mean higher returns from your term deposits.
So, is this a good time to move some of your investments into term deposits?
Before you do, let’s start by understanding why term deposits are great for certain situations and what you can do to get more from them.
What is the right way to use term deposits?
In general, it’s not advisable to use term deposits for long-term placements or investment accounts. The reason is that your money compounds at a lower fixed rate within a 3-to-5-year period (or longer), compared to investing in a diversified portfolio.
As such, it doesn’t make a lot of sense to put all your money in term deposits for long-term investments if you want to get the best returns for the money.
However, a term deposit account makes a lot of sense if you’re focused on near-term/short-term placements. This could be any of the ones below:
- Short-term goals such as a down payment for a car or a holiday fund. Any situation where you need to keep the money safe and use it when the time comes.
- Near-term expenses include saving up for an education/tuition fee within the next year.
- An emergency fund/savings that you will need to cover at least six months of living expenses and need to be instantly accessible.
- A low-risk retirement fund if you’re close to retiring or retired and don’t want to invest or take any unnecessary high risk for your investment.
With term deposits, the best way to optimise its returns is to focus on short-term goals. These are for large purchases you already plan to make in the coming months or year so putting your savings for the short term in a term deposit allows you to profit a little more from the money saved.
As for the money you put aside to invest, it is best not to keep it locked in a term deposit for too long as it will lose out to inflation in the long run.
But, what if you can have the best of both worlds? On one hand, you can maximise your term deposit account with attractive profit rates. At the same time, your money is working harder in an investment account.
You can combine a term deposit and investment account with MaxCash
Bank Islam’s MaxCash campaign is a unique 2-in-1 approach that combines the best of a term deposit account with Terms Deposit Tawarruq-i (TDT-i) and Al-Awfar investment account.
With this hybrid approach, Bank Islam will place your funds in both accounts using a 70:30 ratio.
| Ratio Placement (100%) | Term Deposit Tawarruq-i (70%) | Al-Awfar (30%) |
|---|---|---|
| E.g. RM10,000 | RM7,000 | RM3,000 |
If you make a minimum TDT-i placement of RM10,000 during the campaign period (from 20 Oct 2022 until 31 December 2022), you could enjoy up to 5.70% p.a. Term Deposit profit rate for 6 months placement, as well as the chance to win accumulated prizes worth up to RM15 million in Al-Awfar draws.
Or if you’re interested solely in term deposit accounts, you could enjoy up to 4.40% with the TDT Extra campaign from 20 Oct 2022 until 31 December 2022 with a minimum placement of RM10,000.
Either way, with Bank Islam’s MaxCash campaign, you’re able to secure your funds with a high-rate deposit account while still having some parked in an investment account for a diversified portfolio.
Are you ready to maximise your term deposit? Then head over to Bank Islam’s Max Cash campaign page or TDT Extra campaign page to get the best Term Deposit profit rate for the most optimal returns!
