A fixed deposit, or ‘FD’, is a type of bank account that promises the investor a fixed rate of interest. In return, the investor agrees not to withdraw or access their funds for a fixed period of time.
In a fixed deposit, interest is only paid at the very end of the investment period. Since the investment term and interest rate are fixed, you can easily calculate the interest you will earn at the end of any fixed deposit investment.
How do fixed deposits work?
When you open a fixed deposit account, you have the option to choose a tenure (also known as ‘term’). When you select a tenure, you are deciding to put your money away and not touch it for a period of time (one month, three months, six months, one year, etc.). These tenures can vary anywhere from one month to five years.
Each tenure comes with a predetermined interest rate. For example, banks normally quote their fixed deposit interest rates in a table similar to the one below:
In the example above, if you open a fixed deposit with a 12-month tenure, you will be entitled to an interest rate of 1.85% p.a. at the end of three months. A placement of RM10,000 with a 12-month tenure will give you RM185 when the tenure ends.
Generally, the longer the tenure, the higher the interest rate will be. Banks often offer promotional fixed deposit rates as well, so it’s good to always be on the lookout. Promotional rates can go up to 2.75% for a 12-month tenure.
What happens when you withdraw your funds before the tenure ends?
If you withdraw your funds before the fixed deposit tenure ends, you could lose part – or all – of your interest.
So before you place a large sum of money in a fixed deposit, you should consider if you need these funds in the foreseeable future, and plan your tenures accordingly. Otherwise, an early withdrawal could make you lose thousands of ringgit in interest earnings.
Some people get around this by placing multiple fixed deposits with different tenures (this is known as fixed deposit laddering). For example, say you have RM30,000. You could place RM10,000 on a one-year tenure, RM10,000 on a two-year tenure and RM10,000 on a three-year tenure. This spreads out your money so that it’s more accessible, rather than locking it up for several years.
What kind of fixed deposits are there?
Here are a few types of fixed deposits you’ll find in Malaysia:
- Short-term fixed deposits. Got extra funds to put aside, but need them again in a month or two? Consider putting your funds in a short-term fixed deposit. The interest you’ll get won’t be earth-shattering, but it’s better than nothing.
- Long-term fixed deposits. If you don’t need to access your savings anytime in the near future, consider putting them in a long-term fixed deposit. Some banks offer tenures of up to five years. Generally, the longer your tenure, the better your interest rates will be.
- Islamic fixed deposits. Islamic fixed deposits are based on the Shariah concept of Commodity Murabahah. When you place a deposit into an Islamic fixed deposit, you are essentially purchasing an approved Shariah-compliant commodity and selling it at an agreed marked-up price. As a result, you generate returns from your funds without involving the concept of interest.
- Foreign currency fixed deposits. These fixed deposit accounts allow you to hold savings in foreign currencies. This is helpful if you need to protect your savings against exchange rate fluctuations.
- Junior fixed deposits. Want your kid to develop a saving habit? While conventional fixed deposits typically require you to be 18 and above to apply, younger savers can open an account with banks that offer junior fixed deposits.
- Senior citizens’ fixed deposits. Are you a retiree who’s wondering how to safeguard your nest egg? Consider a fixed deposit that’s geared towards senior citizens. Some fixed deposits, such as Hong Leong Bank’s Senior Savers Flexi Fixed Deposit, allows you to make an early partial withdrawal without losing any interest.
What are the advantages and disadvantages of fixed deposits?
So why should you put your savings in a fixed deposit? Here are a few benefits:
- Low risk. Unlike investing in the stock market or in unit trust funds, it is safe to put your money in a fixed deposit as your interest returns are guaranteed.
- Your money is insured. In the (very unlikely) event that your bank fails, Perbadanan Insurans Deposit Malaysia (PIDM) will reimburse you with the money you have deposited, up to RM250,000.
- Higher interest rates. Fixed deposits generally give you more interest than savings accounts.
- You can easily withdraw your money. Need your money for a financial emergency? With fixed deposits, you can withdraw your money at any time, although if you do so before your tenure ends, you could lose part or all of your interest.
But you’ll also need to keep in mind these drawbacks:
- May lose interest returns. Fixed deposits are not very flexible. If you withdraw your money before the tenure ends, you could forfeit your interest returns.
- Low returns compared to investing. If you’re a younger investor who can afford to take some risk, you should not rely entirely on fixed deposits to grow your funds. That’s because other investment options (even low-risk ones) have potential to yield higher returns.
What’s the difference between a fixed deposit account and a savings account?
A fixed deposit account is similar to a savings account, in that they’re both low-risk options to grow your money.
However, a major difference between the two is the interest rates offered. Fixed deposit accounts generally offer much higher interest rates, around 1.4% to 2.4% p.a. Savings accounts, on the other hand, usually offer interest rates of around 0.2% to 1.5% p.a.
Some savings accounts do have interest rates similar to (or higher than) those of fixed deposit accounts, but they come with a few conditions – you may have to deposit a high amount of savings, use your account to pay a certain number of bills or spend a minimum amount with your linked credit/debit card every month.
Which banks offer the best fixed deposit rates?
The best fixed deposit account for you is not necessarily the one with the highest interest rates, but the one that best fits your needs. Nevertheless, these banks currently offer the highest interest rates for a six-month tenure:
| Bank | Promo period until | Minimum deposit | Interest rate (p.a.) |
|---|---|---|---|
| Affin Online eFixed Deposit | N/A | RM500 | 1.6% |
| Hong Leong Bank eFixed Deposit-i | March 31 | RM10,000 | 2.25% |
| RHB Commodity Murabahah Deposit-i / e-Term Deposit account | March 31 | RM10,000 | 2.48% |
| AmOnline eFixed Deposit Promo | N/A | RM500 | 1.7% |
| CIMB eFixed Deposit | March 31 | RM5,000 | 2.20% |
What are the historical fixed deposit rates in Malaysia?
Curious how today’s interest rates compare against those of past decades? In 2019, the average deposit interest rate was 2.983%. However, this year, average fixed deposit interest rates offered by banks have fallen in tandem with the four overnight policy rate (OPR) reductions.
Now that you know all about fixed deposits, you can browse the iMoney comparison pages for the best conventional fixed deposits and Islamic fixed deposits.
Of course, putting your money in a fixed deposit account is a great way to safely grow your wealth, but it isn’t the only way. If you have many years to go until retirement, and can tolerate the risk, consider investing your savings as well.
This article was first published in 2012 and has been updated for freshness, accuracy and comprehensiveness.
