This article was first published on 15 November 2018 and updated to include additional information.
Fixed deposits are a way to earn guaranteed returns on our money that are higher than a savings account, while still being virtually risk-free. However, most banks have been reducing fixed deposit interest rates, such that the interest rates earned by Singapore Savings Bonds (SSB) is even higher than most fixed deposits.
Thus, we’ll examine whether they still have a role to play for your investment and budgeting needs.
Advantages Of Fixed Deposits
Simplicity: The simplicity of fixed deposits make them popular among our parents’ generation, since you don’t need any skill, luck, or experience to make money from fixed deposits. You give your money to the bank, and they return your principal plus interest after the tenure is up.
Predictable: Fixed deposits can be interesting for investors looking to build a foundation of stable assets that guarantee their principal and returns, so they would be in a better position to make higher risk, higher return investments like stocks, properties, peer-to-peer lending, or even cryptocurrencies. Thus, they are useful for sums of money you absolutely cannot afford to lose to the fluctuations of the market, such as money set aside for renovations, education, or downpayment for a car.
Accessible: Fixed deposits can be made with sums of money as little as $1,000 and with maturity periods of one month to a few years. Unlike instruments like SSB, where may be allocated with less than what you want to invest on months where the bond is oversubscribed, you can invest as much as you like in fixed deposits. Also, there is no cap on how much you can place in fixed deposits, unlike the SSB, which has an individual limit of $200,000.
Safe: Singapore consumers enjoy a tightly-regulated banking eco-system. In addition, deposits with all full banks and finance companies in Singapore are also covered under the Deposit Insurance Scheme, insuring up to $75,000 of deposits in each account.
Disadvantages Of Fixed Deposits
Liquidity: Obviously, you will be giving up liquidity when you place money in a fixed deposit. This means that if you do need that money urgently before maturity, you’ll receive little or no interest. It is worth noting that the amount lost for pre-maturing redeeming your capital is marginal, compared to what you would lose for surrendering other instruments early like endowment plans.
Interest Rates: Interest rates for fixed deposits are currently relatively low, even compared to virtually risk-free investments like SSB.
Which Bank Offers The Best Fixed Deposit Interest Rates?
This is a little tricky to determine, since banks have board rates for fixed deposits that don’t change much, and promotional interest rates that can change on a monthly basis. Obviously, you should take advantage of the prevailing promotional rates at the point you wish to make your fixed deposits.
The rates also differ depending on the amount of money you’re depositing. You shouldn’t commit more money just because you want to hit the next interest rate tier, but rather, consider how much you plan to set aside, and look for the bank with the best rates at your desired deposit amount.
To get you started, here is a good list of banks to get your started, listed in alphabetical order.
Bank of China: Board Rates
Citibank: Board Rates
DBS: Board Rates
HSBC: Promotional Rates
RHB: Promotional Rates
Standard Chartered: Promotional Rates
What To Take Note Of Before Making A Fixed Deposit
After selecting the bank with whom you wish to place your money in, you’ll also need to decide on the tenure (duration) you desire. In most cases, you can also decide what you want to happen after your fixed deposit reaches maturity, including automatically making a new fixed deposit with your principal and interest (rolling over), just rolling over your principal and withdrawing your interest, or withdrawing both principal and interest.
Finally, you should find out exactly what charges and fees you will incur if you withdraw your fixed deposit early, and how much interest is payable (if at all).