A few years ago, you could get a return of 4 percent p.a. On the compare FD rates for you. But you’d be fortunate in 2021 if your bank were to sell you anything above 2%. Are they still worth the time and effort, with fixed deposits, returns that easily touch inflation?
Fixed deposits, given poor yields, are good at becoming two things: secure and reliable.
It’s assured that your fixed deposit will expand at set rates, so you’ll know exactly what you are getting. Fixed deposits are also immediately secured by Malaysia Deposit Perbadanan Insurans (PIDM).
So for you, a fixed deposit makes sense if:
- You’re a retired citizen, or you’re going to retire- As you may not have time to recover from major losses, you will no longer be able to invest in risky assets. A part of your investments in fixed deposits may have to be retained.
- Soon, you must use your money- If you save for a short-term purpose, such as a down payment next year for a new car or a master’s degree, you need somewhere secure to store your money, so you can use it when the moment arises.
- To keep your emergency fund, you need someplace- Usually, the emergency fund must cover at least six months of living expenditures and must be available immediately. Generally, this is held in a fixed deposit or savings account.
Consider diversifying into other assets when you can afford to do so. Holding much of your money in fixed deposits as a younger investor means missing out on potentially better returns, and not being able to fulfill future financial objectives. And you can also pursue other low-risk investment strategies that can offer better returns if you’re an older investor who wants to safeguard your assets.
How to maximize your savings returns
Here are a couple of ways to get more out of your savings:
Move to a fixed deposits with higher returns
- Laddering Fd interest rates
Fixed deposit laddering is a strategy that propagates your money along with all distinct tenures, giving you more versatility to obtain your money and helping you consider taking benefit of the great rates.
You could stretch out your cash like this to established up an initial ladder:
Fixed deposit 1: One-year tenure of 5,000
Fixed deposit 2: for a two-year tenure of 5,000
Fixed deposit 3: for a three-year tenure of 5,000
Fixed deposit 4: for a four-year tenure of 5,000
You will reactivate each fd interest rate into a four-year tenancy at the end of each term of office. This implies that each fixed deposit will have a four-year tenure that benefits from better rates, as the longer your tenure, the higher rates are offered by banks. You will also have a fixed deposit maturing at the end of each year, so you can easily access your cash without a penalty for canceling your tenure.
The term is up to you before trying to set up a fixed deposit ladder. Based on how available you want your funds to be, you can set up narrower tenures (of one month, two months, etc.). You can also choose narrower tenures if you predict interest rates increasing shortly, so you’re not stuck in reduced premiums.
- Look for investments with low-risk
Fixed deposits, even if you value protection, are not the only place to put your cash in. You may consider these low-risk investments as well:
- Money market or invest for cash management- The trust funds of these units invest in short-term debts lent to banks and the government. In these investments, there is little inherent risk. These funds have generated about 2.78 percent to 3.45 percent returns per annum over the past five years (according to funds listed on Fundsupermart).
- Bonds- A bond is the protection of debt issued by governments or businesses who want to raise funds. You loan money to the lender when you purchase a bond in exchange for interest payments.
- Broaden into investments with higher risks
If you’re young and have a high-risk tolerance, all your money in fixed deposits should not be saved. Some of your savings could be put into higher-risk investments for better returns.
In brief, in your financial planning path, fixed deposits likely still play a significant role, particularly if you are closer to retirement and need to maintain your earnings. Look for financial institutions with good prices to get the best returns and use a laddering tactic. Just note that you wouldn’t have to keep all your investments in a fixed deposit, other low-risk investments are open, and you can even select higher-risk ones if you can handle the risk