Earning highest returns on bank fixed deposits
Fixed Deposits are a type of interest yielding account offered by banks that require the account holder to maintain funds with the bank for a fixed period of time. They may also be known as Term Deposits or Time Deposits or Cash Deposits. Here, we will explore a few strategies for earning the highest possible returns through fixed Deposit products:
Deposit Tenure / Amount
Some banks offer increasing rates of interest based upon amount of initial deposit and tenure chosen. For instance, if you are choosing to deposit using DBS Bank’s S$ Fixed Deposits you get an interest rate of 0.0500% for a deposit between $1,000 to $9,999 for a tenure of 1 month. If however, you go in for a tenure of 24 months, you get an interest rate of 1.0% p.a.
Foreign Currency Deposits
Foreign currency fixed deposits are deposits that are denominated in a currency other than the Singapore Dollar. Many banks in Singapore offer Foreign Currency deposits in a variety of currencies. For Example Citibank Singapore is offering different foreign currency accounts for depositing foreign currency in Singapore such as
- Global Foreign Currency Account,
- US Dollar Savings Account and
- Checking Accounts.
These are usually available in tenors ranging from one week to 12 months.
Foreign currency deposits provide the potential of earning higher returns than on conventional deposits. They are, however, subject to foreign exchange risk. Foreign currency deposits also provide different interest rates for different tenures for the currencies available with such products.
The Foreign Currency Time Deposit from OCBC Bank for example, provides 2.30% p.a. for New Zealand Dollar deposits for a 3 month tenure, 2.50% p,a, for New Zealand Dollar deposits for a 12 month tenure and 0.70% p.a. for US Dollar deposits for 3 month tenures.
Foreign currency call deposits provide both returns and liquidity for customers who need to make payments in future on an unknown date. The Foreign Currency Call Account from OCBC Bank offers interest of 1.85% p.a on AUD (minimum deposit AUD 2,000), 1.30% p.a. on AUD (minimum deposit NZD 2,000), 0.40% p.a. on Renminbi (minimum deposit RMB 2,000) and no interest on other currencies (SGD, USD, EUR, CAD, GBP and JPY). The Foreign Currency Call Account from Maybank and the Multi Currency Call Account from ANZ are other examples.
Islamic deposits may also potentially provide higher rates of return than conventional Singapore$ deposits. For instance, the Singapore Dollar Term Deposit-i from Maybank is based on the Shariah principle of Murabaha and involves sale of commodities at marked-up prices between Maybank and you. Profits are determined upfront and will be paid one calendar day after cash placement or cheque clearance.
The profit rates for this product are dependent upon the amount on deposit, the tenure of deposit and whether the depositor is 55 years and above or not. If a depositor makes a deposit of $25,000 for a period of 6 months, s/he will get an profit rate of 0.40% p.a. If the depositor is 55 years or older, s/he will get a profit rate of 0.65% p.a.
Singapore dollar deposits are protected for up to S$50,000 in aggregate per depositor per Scheme member by law. Foreign currency deposits, dual currency investments, structured deposits and other investment products are, however, not insured.
Save on Income Tax on Interest on Fixed Deposits
The interest received from fixed deposits is taxable, unless they are specifically exempted under the Income Tax Act. And, as per the provisions of the Income Tax Act, interest received from deposits with approved banks or licensed finance companies in Singapore is not taxable.
Approved banks include those banks that have been classified by the Monetary Authority of Singapore (MAS) as “Commercial Banks” or “Merchant Banks”. Licensed finance companies are categorized as such by the MAS. Moreover, you do not need to declare interest that is not taxable.
Check Alternative Investment Products
Although fixed deposits provide safe and guaranteed returns, it does not mean that you should not consider equivalent alternatives. And, one such alternative that has emerged in recent times are Singapore Savings Bonds (SSBs) that were introduced by the Singapore government in 2015. SSBs are a low-cost investment option meant for retail investors like you.
You can invest a minimum of $500 and in $500 multiples thereafter. The investment term is up to 10 years. You can redeem them at any point; you will not be charged a penalty. If, you, however, hold your investments for the full term of 10 years your returns are likely to be higher than if you redeem somepoint midway. SSBs are fully backed by the Singapore government.
For better understanding read our earlier post about Fixed Deposit