‘I might as well put my money into FD!’. That sounds like one common statement made when it deals with someone talking about their money. This is actually quite a generic sentiment when you have an amount of cash but do not wish to risk anything by investing it wrongly.

What exactly are Fixed Deposits?

Known in short as FD, fixed deposit is like what its name implies, a deposit with a fixed amount and fixed interest. This is an account usually offered by banks that guarantee (or promises) you a certain interest rate which is fixed. However, to fulfill your end of the bargain means you agree that you will not touch the money for a certain time period. This is because you will only get the interest after that period ends.

How do FDs work?

Like every other form of investments with a somewhat promised interest rate, your money is used as re-investment to multiply the amount. What happens is that two parties will be involved from the start namely: the bank and you. You will first discuss and agree:

  • The amount that you wish to deposit
  • The duration (period of time ranging from 1 month to years)
  • The interest rate
  • or any other issues such as topping-up the amount, incremental interest rate, etc

As a general rule of thumb, the longer you put your money in your account, the higher the interest rate should be. For instance:

  • 1 month – 2.9% p.a
  • 3 months – 3.0% p.a
  • 12 months – 3.3% p.a
  • 24 months – 3.5% p.a

TIP: What makes FD a good engine is that you can then calculate your returns based on the term and interest rate involved. For instance, if you deposit SGD10,000 for 3 months, your returns would be SGD300/ (12 x 3) which would be SGD75. If you do so for 2 years, it would be SGD350 per annum which means you will get SGD700 at the end of the term.
Take note that if you decide that you want to withdraw the funds before the end of the agreed terms, then you could lose all or part of your interest you earned.

  • Tip: Think long and hard before you invest a lot of money for a long period of time. You might need the funds later because if you decide to take the money out, you could lose more

Types of FDs

In Singapore, banks usually offer the following types of FDs.

  • Short-Term – known as short-term fixed deposits, you can put your money from 1 to 3 months on a guaranteed interest rate
  • Long-Term – The opposite of short-term FDs, you can set aside a large sum of money for a few years without touching them and enjoy fixed interest rates. Most banks will offer you up to 5 years (or even longer)
  • Islamic FDs – This type of FD is designed based on the Syariah concept of Commodity Murabaha where you are basically buying a commodity which is Syariah-compliant and then selling it later for a higher price agreed. This means you do not involve any form of interest rate
  • Foreign Currency – This type of FD is where you invest in foreign currencies which is designed to help you protect your money from fluctuations in the foreign exchange rates
  • Junior and Senior FDs – Junior FDs are intended for the kids for their future while Senior ones allow certain provisions for partial withdrawal while protecting the interest rate