Should You be Putting Your Money in Fixed Deposits in 2017?
It’s the new year and if you’ve made getting your finances in order one of your resolutions this year, then you must be thinking of a way to do that.
If you’re thinking of investing your money into fixed deposits, here’s why you should. What’s more, there are other types of investments that may be suitable for you too.
Just bear in mind, no two investors are the same. So first, assess your risk appetite and find out which form of investment would suit you better.
Say yes to fixed deposits!
For new investors, fixed deposits are considered the safest option for your money. It protects your capital and its growth is stable.
When you put your money into fixed deposits, your funds will be locked for a period of time until maturity.
The longer the deposit term, the higher the interest rates you receive. Although this means much less flexibility, this ensures that by the end of the investment term, you will receive your capital back with interest.
Here are some pros to investing in fixed deposits:
- Guaranteed returns:
For those of you who are very conservative investors, this would be perfect for you! Unlike investing in stocks, fixed deposits do not depend on the market. So, you can just lay back and watch your investment grow without worrying about what happens to the market.
- Higher return rates than savings accounts or holding cash
Yes, cash is king. But cash can be king that keeps on growing. Putting it in a savings account is not the best of ideas because of its low interest rates. And you might be tempted to spend the money if it’s so liquid. Putting it in a fixed deposit guarantees your returns at a higher rate, albeit not that much higher.
- Low investment requirements
Fixed deposits do not have a high barrier to entry. You can start accruing interest with just a small deposit, from as low as S$1,000.
- Almost anyone can open a fixed deposit account
In some banks, you just need to be as young as 12 years old to open a fixed deposit account. So, mommies and daddies, it wouldn’t be a bad idea for you to open an account for your child and save your children’s angpow money!
Opening a fixed deposit account in Singapore
It’s quite simple to open a fixed deposit account, it is as easy as opening a savings account. Better yet, if you already have a savings account, you could easily open a fixed deposits account online with some banks, without having to go down to the bank itself.
Here are some of the banks in Singapore you can consider for fixed deposit:
*Rates are based on an investment of S$50,000 over a period of 12 months
Annual rate: 1.4%
Interest earned after 12 months: S$700
Annual rate: 1.25%
Interest earned after 12 months: S$625
Annual rate: 0.9%
Interest earned after 12 months: S$450
Annual rate: 0.7%
Interest earned after 12 months: S$350
Annual rate: 0.35%
Interest earned after 12 months: S$175
Do take note that these rates fluctuate and banks will frequently have promotions that will offer higher interest rates! So, make sure you conduct your due diligence before depositing your funds.
But, consider the downsides
Maybe your risk appetite is much higher and you want to see higher returns faster. Fixed deposits may test your patience then.
The downsides to putting your money into fixed deposits are:
- Loss of liquidity
Your funds must be committed throughout the duration of the deposit. If you’re running your own business and need cash flow, this might not be a good option for you. Also, if you wanted to withdraw your funds before the maturity term, you might end up paying more fees than you bargained for.
- Fixed interest rates
The interest rates for fixed deposits are fixed throughout the deposit term. So let’s say you put your deposit your funds in for five years. The interest rates you receive will be untouchable and not negotiable. So, in the event of inflation, the interest rates will not increase. Also, it will not be able to hedge against currency changes, should the Singapore dollar fall.
- Low returns
As compared to other forms of investments, like stocks or real estate, the returns from fixed deposits are comparably lower. On top of that, you might have to keep your money deposited in your account for a long period of time for noticeable returns.
What other investments can you consider?
Find that the returns are too low for you? Can’t wait that long for the funds to mature?
Here are some other investments you can consider to put your money into. But bear in mind that these products may possibly have higher risks as compared to fixed deposits.
Contracts-for-Differences (CFDs) allow you to speculate that the price of an asset will move up or down, without actually having to own the asset itself.
CFDs are usually leveraged instruments and thus have magnified gains and losses. So make sure you conduct your due diligence before trading CFD. But worry not too much, there are advanced platforms that can help manage your risks, one such example would be IG’s guaranteed stops. This platform can help you set an absolute cap on your potential loss.
- Stock market
But everyone’s trading in the stock market… We know. But are they smart about it? Although the market can sometimes be unpredictable, there are platforms that can help you with that. The CIMB i*Trade platform (available for mobile too!) comes equipped with the i*Screener feature, which can help you assess each share based on a customized rating system.
Also, if you want to know which stocks to trade, you can take a look at the iBillionaire app by CIMB, which gives you an insight into what some of the world’s top billionaires are trading. That way, if you know that they’re trading a particular share, it’s probably worth looking into.
- Direct developer funds
Think of it as private equity for properties. When you invest in direct developer funds, you will make the same gains and similar benefits as a developer, minus the hassle of facilitating the project management.
Unlike real estate crowdfunding, direct developer funds invest in developments that are locally-based, such as projects by ZACD. That way, people are more familiar and can identify with the properties. Also, they could drive past the development, point and say “I invested in that!”. But bear in mind that direct developer funds come with a pretty high barrier to entry.
No matter the investment, conduct your due diligence
Whatever it is you decide to put your money into, make sure you conduct your due diligence and research on where your money will be going.
Not forgetting, assess your capital and risk appetite. It’s recommended that your investment capital should only be about 10% of your net income. Don’t end up putting in more than you have bargained for. Not all the investments you make will give you gains!