Deep, deep dive
- Before you invest, check that your FD is insured by PIDM
- Check terms and conditions before agreeing to promotional rates
- Split your FD savings into a few smaller accounts
- Make sure you know the penalty of withdrawing funds before the end of the term (prematurely)
- Understand requirements to partially withdraw funds from your FD
When is the interest paid out?
For time frames of 12 months or less, interest is typically paid out right at the end of the tenure. For tenures of more than 12 months, interest is typically paid every 6 months. However, this can vary from bank to bank, so be sure to shop around and compare a few options!
Instead of getting a 3-year fixed deposit, why don’t I get a 1-month fixed deposit and keep rolling it for 3 years?
“Rolling” or re-investing like this is a good idea if you are looking for flexibility since you’ll be able to access your funds at the end of each month without giving up the interest. However, even when compounded over 36 months, the effective interest you get on one-month fixed deposits will be lower than if you followed a 3-year deposit instead.
Let’s use the earlier interest rate example from Maybank and calculate for an RM5,000 deposit. A one month fixed deposit rolled over for 36 months vs. a 36 month fixed deposit. The upfront 36-month option earns you an extra RM19 but you lose the flexibility of withdrawing your money without paying a penalty. You will have to decide for yourself if this RM19 is worth giving up that flexibility.
|36-month fixed deposit
Interest per annum: 3.15%
Total sum after 3 years = 5,000 + (5,000 x 3.15% x 3 years) = RM5,473
|One-month fixed deposit rolled over for 36 months
Interest per annum: 2.9%
Monthly interest rate: (2.9/12)% = 0.24%
Total sum after 36 months = 5,000 x (1+0.2417%)^(36 months) = RM5,454
The timeframe that you choose for your fixed deposit really depends on the chances you will need that cash during that period of time. It’s always better to choose a tenure that you are sure you can go through without having to withdraw your money prematurely.