July 31, 2007

Should I put my money in Fixed Deposit?

I guess everyone at some point in time have opened fixed deposit/time deposit (FD) accounts before, especially for us, Malaysians who have very high savings percentage. In fact, there are billions of Ringgit being kept in FD accounts in our banking system now.

So why is FD so popular? Well, some part of it is due to legacy reason. In the older days when there wasn't any viable financial instruments to invest in, FD is considered the de facto choice. It is relatively safe (guaranteed by the government), and offers high liquidity (easy to redeem/withdraw to cash). It is because of these two reasons that so many people, especially the elders, trust FD so much.

Some of you might question on why we need FD since we can get higher interests by investing in unit trusts/shares. My personal opinion is that all of us should have FD as a part of our financial portfolio because:

  1. As a liquid source of money for short term needs - the money that you need to use in 6 months to a year should be kept in a liquid position. FD is a good choice, especially if you can keep it in monthly term.
  2. Safe investment - even though the interest rate is quite low at the moment, we should consider keeping some money in FD due to its safe investment nature.
As a summary, just keep enough money in FD for your short term needs, and invest the rest in other financial instruments. We will explore other options in the future article!

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