What are fixed/term deposits and are they worth it?

fixeddepjg

Another possible savings vehicle which you could consider is the Fixed Deposit/Time Deposit/Term Deposit account. These are all just different names for the same thing: essentially, you lock up a specified amount of savings for a specified amount of time and no touchie.

The logic is that the bank can offer you better interest rates (compared to a normal savings account) if there is a guarantee you won’t touch the money within the specified term period. If you do decide to withdraw your cash and terminate the account before time is up and before the deposit matures, you would forfeit the profit.

Normally the minimum deposit amount is $1,000 and you can choose lock-up periods (i.e. term periods or “tenor”) ranging from 1 month to 3 years.

I checked all the websites for the major banks in Brunei and they all list this as a service they provide, but only BIBD and Baiduri have their details online, so you’d have to check at the counters for the others if you’re really interested. From the information that I’ve got, the offerings at BIBD and Baiduri are pretty much identical.

BIBD specifies that term periods of 3 months or longer require a minimum opening deposit of $1,000. However, if you’re super impatient and only want to lock-up for 1 month, then the minimum opening deposit is $5,000. You can choose a term period of 1, 3, 6, 9 months or 1, 2, 3 years. Baiduri states that their minimum deposit is $1,000, perhaps irrespective of tenor length, and you can choose 1, 3, 6, or 12 months.

Here are the rates for BIBD:

FDBIBD

Here are the rates for Baiduri:

FDbaiduri

Important! These rates are on a per annum basis, so you would have to (1) multiply your deposit amount by the rate listed above, (2) divide by 12 months, and then (3) multiply by your chosen term period (in months).

So for example, if you had $5,000 and you wanted to lock it up for one month, your profit would be

(1) $5,000 x 0.2/100%
(2) ÷ 12
(3) x 1 month

Or in one line, basically $5,000 x 0.2/100 ÷ 12 x 1 month = 83 cents SNORE.
So that’s really not worth your time, to be honest.
Personally, I don’t think anything less than one year is worth it.

Let’s see how much profit you could get locking up $1,000 for a year.
$1,000 x 0.75/100% ÷ 12 x 12 months = $7.50, that’s better!

If we compared this interest rate to the savings accounts, you would only be able to get 0.75% p.a. either with the Baiduri Multi-Tier Rate account (fine print: you would have to get your salary assigned to Baiduri, and apparently be a government, semi-government, or Shell-linked employee) or potentially a TAIB account (fine print: strictly profit sharing, no guarantee on the returns, depends how their financial performance is for that year).

So if for one reason or another, you’re not keen on the Baiduri Multi-Tier Rate or TAIB, a fixed/term/time deposit could be an alternative to consider.

The added benefit is that by committing to locking some of your savings up, you’re much less tempted to reach for it (unless it’s a real emergency and it’s worth foregoing the whole profit). In this way, a fixed deposit is good for extra discipline – almost like freezing your ATM card in a block of ice, except by the time the ice defrosts there’ll be a little bit more money in there than what you’d started with.

If you’re new to the concept, my advice is to start small and not over-commit. Don’t throw your entire savings into a fixed deposit, especially if the chances you’ll need it within a year are high. Remember, you can’t just “withdraw” a little bit – if you want a little bit, you have to terminate the whole thing.

So start small. If you can afford to scrape $1,000 off the top of your savings, then throw that into a fixed deposit for a year and just forget it exists. If you ever feel like you can afford to scrape another $1,000 away without missing it, then open up another fixed deposit account and throw that in.

Remember, there’s actually no real benefit to putting huge amounts into one account. The profit for a lump sum $5,000 for a period of one year is the same as five separate $1,000 accounts over the same length of time. There’s even this strategy/trick called a CD ladder (certificate of deposit – same thing, that’s what it’s called in the US) which you can Google.

Essentially you open up small-sized fixed deposits over a number of months so it becomes staggered, like steps on a ladder. For example, if you have $3,000 to deposit – don’t put it all into one account. This month you throw in $1,000. Then two months later, another $1,000. And then the following two months $1,000. So next year the accounts will mature every two months – so if you need any of it, chances are you’ll be able to access one that’s already matured and generated profit.

Like I mentioned in the last post, we’re not talking about striking gold and winning the lottery here. But we should all try to build up a decent savings – at minimum, as an emergency cushion – and if it’s just there sitting around, you might as well chuck it into a place where it can grow just a teeny-tiny bit bigger, just a teeny-tiny bit faster.

 

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s