A Fixed Deposit or a Term Deposit or a Time Deposit or a Cash Deposit as it may be known is a type of account that offers a fixed and guaranteed rate of interest on your savings or investment. Such accounts with varying tenors of up to 3 years are offered by almost all banks in Singapore. Let us take a look at some of the best advantages of cash deposits:
1. Higher Interest
Fixed Deposits come with the distinct advantage of offering higher rate of interest relative to normal savings accounts. This is true even if the interest rate on offer for Fixed Deposits varies from bank to bank with some banks offering a higher rate than others.
2. Guaranteed Returns
Returns on Cash Deposits are guaranteed. They are not dependent upon or tied to market fluctuations. Even if popular market-linked rates like SIBOR or SOR go up or down your returns from Cash Deposits will not vary. That is because these returns are guaranteed.
Even if the bank or financial institution that guarantees your Cash Deposit returns fails, your Singapore Dollar denominated deposits may still enjoy protection under the Deposit Insurance Scheme of the Singapore Deposit Insurance Corporation Limited (SDIC) of up to $50,000 in aggregate of all your eligible accounts with that bank. All that you need to do is ensure that the deposit product you are investing in enjoys SDIC protection.
3. Potential cash flows
Your Cash or Time Deposit earns you interest on a monthly / quarterly / annual basis. Some banks allow you the facility of transferring your returns to an account of your choice thus providing you with a regular income. Even if you do not have access to your entire cash deposit you will still enjoy cash flows from your deposit making them an attractive savings/investment choice, especially for retirees.
4. More reliable than stock market instruments
Investing in Fixed Deposits is more reliable than investing in stocks or commodities. The returns from Fixed Deposits are guaranteed which is not the case with market-related instruments like stocks and commodities. While it is undeniable that a well-planned, diversified and well-monitored portfolio of stock market instruments provides better returns than fixed deposits over the long term, in the short term the reliable returns of Fixed Deposits provide a safer alternative.
The advantages of Fixed Deposits are not just limited to the above. Fixed Deposits can be used as collateral to avail of an overdraft facility or for a cash loan up to the limit or a percentage of the fixed deposit. Some banks also offer Fixed Deposits with an automatic renewal facility upon maturity saving you the hassle of having to go to your branch to renew it.
In addition to conventional fixed deposits of the type we’ve seen above, Singapore also offers investors other types of fixed deposits (caution: These deposits may not be protected by the Deposit Insurance Scheme of the SDIC). These include Foreign Currency Fixed Deposits, Structured Deposits (a combination of a deposit and an investment product) and Islamic Fixed Deposits (for which Deposit Insurance protection may be available; check with the bank offering that particular product).