12 April 2024
Evaluating Your Options: Are Fixed Deposits a Good Investment?
Investing can be a challenging endeavour, especially for those who have just joined the workforce. Learning about multiple types of investment options is often overwhelming for somebody who has no prior financial knowledge. As such, we recommend learning more about Fixed Deposits, for a solid foundation in your investment journey.
Fixed Deposits are a secure and straightforward way to grow your savings with minimal risk. Through this method, you receive guaranteed returns at a generally higher interest rate compared to traditional savings accounts.
Throughout this article, we will delve deeper into SGD and Foreign Currency Fixed Deposits, to help you understand the pros and cons of each, and why they're an ideal investment style that can help you meet your personal finance goals.
What is a SGD Fixed Deposit?
A SGD Fixed Deposit is when you deposit a specific sum into a bank account for a fixed period, known as a tenure. In exchange for locking down these funds, you receive a fixed interest rate that's higher than what standard savings accounts can provide.
Once the tenure ends, your initial deposit, or principal, is returned to you along with the interest earned. Singapore Fixed Deposits are denominated in Singapore Dollars (SGD), meaning both the deposited amount and interest payments are in the local currency.
Due to their low-risk nature, Fixed Deposits provide a steady and predictable fixed income, growing your finances with no major effort on your part.
As with all investments, it's important to consider a handful of key factors when choosing a fixed deposit, so you can reap the benefits accordingly:
Here's what you can come to expect when making the choice to use Fixed Deposit investments:
Pros of SGD Fixed Deposit
Simple and Stress-Free
Fixed Deposits are one of the least complex investment options. You give your money to the bank for a specific time period, and they return your principal amount with reasonable interest rates at the end of that timeframe. Some banks such as RHB make the process even easier by letting you open an account with their mobile app– RHB Mobile SG.
Low-Risk and Predictable
Fixed Deposits are a safe and stable option. As interest rates are fixed, your investment won't be affected by market fluctuations. You can calculate your guaranteed returns with our Fixed Deposit Interest Calculator.
All full banks, including RHB, have automatic fixed deposit insurance of up to S$75,000 by law under the SDIC scheme*.
Cons of SGD Fixed Deposit
Lock-In Periods
Many Fixed Deposits have a long lock-in period before you can start earning interest. This causes your money to be unavailable for extended periods.
However, with RHB's flexible and hassle-free tenure, you can enjoy a deposit term that's as short as 3 months, with a maximum of 24 months. Minimum placement is only S$20,000 as well.
Low Liquidity
Fixed Deposits are static. If your money is placed in a fixed deposit, you might not be able to access it in emergency situations. Some banks even impose penalties if you end your fixed deposit early, resulting in losing your investment.
That's why banks like RHB avoid imposing premature penalty fees on our Fixed Deposit schemes, allowing you to regain access to your money in times of need.
What is a Foreign Currency Fixed Deposit?
A Foreign Currency Fixed Deposit (FCFD) is an investment option where you deposit money in a foreign currency, rather than local SGD. There's the potential to earn a higher interest than a regular SGD fixed deposit account, but the primary difference between the two lies is that FCFDs are affected by potential fluctuations in exchange rates.
While both types of fixed deposit accounts offer a guaranteed interest rate over a predetermined period, the varying foreign exchange rates can impact the final returns on your FCFD investment. If you intend to invest in foreign currency fixed deposits, you need to be mindful of these exchange rate risks.
Factors such as the stability of your chosen currency, global economic conditions, and the length of the deposit term can all impact the interest rate you gain on your investment. Researching and understanding these factors can help you make informed decisions when considering an FCFD.
Pros of Foreign Currency Fixed Deposit
Attractive Interest Rates
Foreign Currency Fixed Deposits (FCFDs) often offer better interest rates compared to SGD fixed deposits. For example, RHB's FCFD currently has promotional rates of up to 5.00% p.a*, which is one of the highest among Singaporean banks.
Flexible Tenure
Banks like RHB provide flexibility in deposit tenures for FCFDs, offering tenure terms between 1 week and 24 months, as well as options for auto-renewal. Deposits begin as low as S$5,000, with nine different currencies available. Customers can also choose from a total of nine currencies.
Cons of Foreign Currency Fixed Deposit
Higher Risk Compared to SGD Fixed Deposit
If you are converting your SGD into another currency or vice versa for your FCFD, you might be exposed to currency exchange rate risk, which is the change in value that the foreign currency may experience over time. This can lead to fluctuations in your final returns.
Inconvenient Conversion
Converting SGD into foreign currency for investment purposes can be troublesome, and you'll have to take a more active role than a SGD fixed deposits. However, certain banks like RHB can alleviate this burden by managing the process for you. Additionally, RHB allows you to open a FCFD account as well as easily convert your funds to the currency of your choice using our mobile app, greatly simplifying the process and eliminating this con.
Verdict: Is Investing in Fixed Deposits a Good Idea?
Yes, Fixed Deposits are a worthwhile investment for any individual. Diversifying your investment portfolio is always a good idea, and placing funds in a low-risk investment option has few downsides in the long term. With the certainty of guaranteed returns and fixed interest rates, SGD fixed deposits are a low-risk and reliable investment option for investors seeking stability. And for those with slightly higher risk appetites, Foreign Currency Fixed Deposits would be a good option.
For the sake of wealth planning and eventual retirement, fixed deposits prove advantageous compared to traditional low-interest savings accounts. Investing in a SGD fixed deposit is an effective way to cushion your finances against rising inflation. It helps to keep funds safe and growing steadily, rather than stagnating in a savings account.
Begin Investing With a RHB Bank Fixed Deposit
RHB Bank offers both SGD Fixed Deposits and Foreign Currency Fixed Deposits. Our SGD Fixed Deposits provide promotional rates of up to 3.20% per year*, with tenures ranging from 3 months to 36 months, and a minimum placement of only S$20,000. We also offer highly competitive promotional rates for Foreign Currency Fixed Deposits, going up to 5.00% per year* with a minimum deposit of S$5,000 and 1 week to 24 month tenures.
Fixed Deposits are an excellent choice for conservative investors seeking reliable returns, and RHB Bank stands at the ready to help you start investing. We make it simple and easy to open an account and get started with saving, through our convenient RHB Mobile SG app. For more information, contact us today and discover the personal banking services we offer.
The interest rates mentioned are accurate at the time of publishing.
The information presented in this article is accurate as of date of publication.
90 Cecil Street
RHB Bank Building, Level 1
Singapore 069531
CUSTOMER CONTACT CENTRE
1800 323 0100
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90 Cecil Street
RHB Bank Building, Level 1
Singapore 069531
CUSTOMER CONTACT CENTRE
1800 323 0100
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|
|
|
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