Fixed Deposit: Basics You Should Know

Key Points

  • Fixed deposits (FDs) offer a stable way to invest your money for first-time investors.
  • You are only advised to withdraw your investment once it has matured.
  • A fixed deposit is an account that promises the investor a set interest rate in return.
  • One of the most important steps in building wealth is choosing how to invest it. Investing in the stock market or putting money under your mattress is nerve-wracking. That’s why many people turn towards fixed deposits for security and convenience. It may not offer as much return as stock investment, but at least you know your funds will be worth every month!

    Whether you’re investing in stocks, bonds or others, it’s essential to know much about the investments before making a choice. It is to ensure that your capital remains safe and earnings meet expectations.

    Fixed deposit is a popular choice for first-time investors who want to invest in something secure with known returns. Fixed deposit is one of the safest and most reliable investment options through which you can earn higher interest than a regular savings account. However, there are still things you should know before opening an account.

    We are going to tell you more about it in this article.

    What is a fixed deposit?

    Fixed deposit, also known as ‘FD’ in Malaysia, is an account that promises the investor a set rate of interest in return. The difference between a conventional savings account and an FD account is straightforward. For conventional savings accounts, you can withdraw money at any time. However, for fixed deposits, you are only advised to start your investment once it has matured without getting penalized with a fee.

    By investing in a fixed deposit account, you know exactly how much interest will be paid at the end of your investment period. This makes it easy to calculate and track any earnings on these accounts!

    How do fixed deposits work?

    There are many different tenures (a.k.a terms) you can choose from when opening a fixed deposit account. These vary from one month to five years and will affect the time your money is available for use, so CHOOSE the one that fits you most.

    Each tenure comes with its own set of interest rates, depending on the bank you choose. For example, when you open a fixed deposit by placing RM10,000 with 12-month tenure with an interest rate of 2.4%, it will give you RM240 when the tenure ends.

    Therefore, the longer the tenure, the higher the interest rates. Remember to look out for a bank that offers a promotional interest rate, which will provide extra earnings over time.

    What if I withdraw my funds before maturity?

    The early withdrawal facility of a fixed deposit account is an attractive feature that allows you to withdraw money from your investment even before it matures. However, there are some penalties for doing so which should be considered carefully as well. Withdrawing your funds before the fixed deposit tenure could result in losing part-or-all interest.

    Before you invest in a fixed deposit, it’s essential to consider if the funds will not be needed in your near future and plan accordingly. Otherwise, an early withdrawal could result in thousands lost on interest earnings! The funds you invest in a fixed deposit should not be a problem that affects your daily basis.

    Types of fixed deposits

    Malaysia has various types of fixed deposit accounts that offer differing benefits. Let’s have a look at it!

    1. Short-term fixed deposit

    With these short-term fixed deposits, you can get your hands on a quick and easy savings goal. They’re perfect for people with an immediate savings goal, which can be as short as one month or a good six months.

    If you have extra funds that need to be put away for a while, consider investing in short-term fixed deposits. You won’t get the best interest rate, but at least it’s more than nothing!

    2. Long-term fixed deposit

    Those fixed deposits that are a year or more are usually considered long-term, and they can reach up to five years in Malaysia.

    The longer you keep your savings in a fixed deposit account, the better your interest rates will be. So if you don’t need access to your funds for an extended time, consider putting money into long-term fixed deposits with tenures as high as five years or more!

    3. Conventional fixed deposit

    Conventional fixed deposits offer a guaranteed rate of return based on the period you invest for. Depending on the bank and the product, they vary from 1 month to 60 months. The bank guarantees that you will be paid the agreed interest rate on fixed deposits at maturity.

    4. Islamic fixed deposits

    Islamic fixed deposits are based on the Shariah concept of Commodity Murabahah. Islamic fixed deposits are an innovative way to invest in Shariah-compliant goods and generate returns without involving the concept of interest. There are three different Islamic fixed deposits in Malaysia:

    • Mudharabah deposits
    • Murabahah deposits
    • Wakalah deposits

    5. Foreign currency fixed deposits (FCFD)

    The idea behind a foreign currency fixed deposit is to give investors that would like to keep foreign currency for future use and hedge against fluctuations in exchange rates. You can only withdraw all funds from this account without restrictions once the agreed fixed term has expired.

    Difference between a savings and FD account

    There’s a reason banks offer less valuable interest rates on savings accounts, due to instant access to cash, without any penalty.

    When opening a fixed deposit account, the customer deposits money for an agreed-upon amount of time in return for guaranteed interest rates from the bank over time. However, you cannot withdraw your money before maturity, or you will get penalized.

    Pros and cons of fixed deposit

    Fixed deposits offer several benefits, including the following:

    1. Low-risk
    2. Putting your money in a fixed deposit is one of the safest ways to invest, among other types of investments. Not only does it guarantees a fixed rate of interest over time, and it will not be as volatile as the stock market.

    3. Fixed tenure
    4. When you invest in an FD scheme, your money is guaranteed and earns returns. The tenure of up to five years ensures no risks are involved with investing for this extended period!

    5. Various options that suit your needs
    6. Depending on your preference, you can invest in a short-term or long-term fixed deposit. If you have a plan for future needs, you might consider supporting in a long-term manner to achieve your goal with the other returns from fixed deposits.

    If you have a little extra money to invest, you could consider supporting in a short-term fixed deposit. With this, you can withdraw your money in a short amount of time without penalty, but the interest rate is not high either.

    However, when there is light, there is shadow. There are drawbacks when investing in fixed deposits too.

    1. Lower return
    2. Compared to more volatile investments, the return for fixed deposits is considered low. Lower risk as a result of the lower return cannot blame for that.

    3. Penalty if withdraw before maturity
    4. Even if you want to withdraw your funds before the maturity date, there will be a penalty charge. There’s a chance you could lose your interest returns if you withdraw money before the tenure ends.

    How to calculate fixed deposit rate?

    The rate of interest for fixed deposits is computed daily. Most banks in Malaysia calculate the total interest returns using the formula below:

    Money invested x interest rate quoted x (placement period in months / 12 months) = Total interest earned

    How do open a fixed deposit account?

    Now you are interested in investing in a fixed deposit account. We have listed down the requirement to open one account.

    1. Malaysian or non-Malaysian aged 18 and above
    2. For ages 18 and below Malaysian, must have an intrust account
    3. Applicable for individual and non-individual customers
    4. A minimum initial deposit of RM1,000 for 1 month or RM5,000 for 2 months and above
    5. MyKad for identification (Malaysian)
    6. Passport (non-Malaysian)

    When you sign up for an FD, the bank will issue your certificate or statement as proof of placement. This certificate will allow you to check your principal deposit amount, placement period and interest rate. You can also view the date of maturity!


    There’s no better time to start building up your savings by investing. Don’t let it gather dust! Keep an eye on the interest rates, and be sure you know these non-standard terms before committing yourself to a fixed deposit account.

    Fixed deposits are one of the most stable investment options in Malaysia. Remember to do more research and understand fixed deposits before opening an account. Select a reputable bank to experience the utmost convenience with their services!

    Related: Investment 101: How Should I Start Investing? | Top 5 High-Risk Investments in Malaysia | Top 5 Low-Risk Investments in Malaysia

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