If you ask your parents about the best investment tool, they would probably tell you to put your money into Fixed Deposits or FDs. This is true maybe 30 years ago. Those days, if you have a certain amount of money, you would naturally consider putting it into a middle to long-term FD. But today, FDs give you about 2% interest per annum. Is that even a good rate?
Still relevant in Malaysia
One thing for sure, the mentality for FDs has not changed much. According to Bank Negara Malaysia, fixed deposits amount to about RM500 billion in 2019 and that is a figure that cannot be taken lightly. However, with so many different and new investment engines available today, would you still consider using FDs? The answer is YES! That said, you might not want to invest your money the way your parents did some 30 years ago because of the many other options available today. So, what should you take note of?
Money put aside
FDs is where you have additional funds that you do not intend to use for the duration of the term. In other words, it MUST NEVER be used as your emergency fund because once you are getting into the FD, your money is pretty much locked. While you can terminate the contract prematurely, it would mean losing your profits and that would become counter-productive. If you intend to put your money into FD, you must first establish your emergency fund somewhere else and with any additional funds, enter into the FD contract. That would be a better and sound plan for investing your money.
Diversify your investment
FDs should be used as part of your diversified investment portfolio. If you have additional funds to put into FD (minus your emergency fund), don’t put all 100% here. In other words, you should not fully rely on FDs to be your long-term investment. It would give you stability and a compounded rate of returns between 3 and 5 years but you should have other investments too. With a more diversified portfolio, your returns for the same period could be much more. However, it also means higher risks as well.
Take note of the dates
FDs have maturity dates and they are very crucial because it means you can either renew the term (to be longer or shorter) or to withdraw the amount. So, if you are planning to buy something large like a house or a car, you can plan your purchase around the maturity date and the amount you can get after that. Try not to withdraw before this date or you will lose out on the interest.
There are many other options that you can consider when it comes to the middle to long-term investment. Fixed deposits are good platforms to use if but they might not be something you want to channel all your funds into. In Malaysia, you are considered old-fashioned if you put your money into FDs but it is safe and steady, so no one can fault you for this!