Guide for Beginners on Fixed Deposits in Singapore

fixed deposit

Fixed deposit provide a secure method for individuals to earn returns on their money, offering higher interest rates compared to standard savings accounts with minimal risk. In this comprehensive guide, we will explore the essentials of fixed deposits, catering particularly to beginners in Singapore.

Advantages of Fixed Deposits

Simplicity: Fixed deposits are favored for their straightforward nature. Investors entrust their funds to a bank, receiving their principal amount along with accrued interest upon maturity.

Predictability: These deposits serve as a stable foundation for investors seeking assured returns. By safeguarding their principal and earnings, investors can then pursue more high-risk, high-reward ventures such as stocks or properties.

Accessibility: With minimum deposits as low as $500 and flexible maturity periods ranging from one month to three years, fixed deposits accommodate a wide range of investors. Unlike other investment options like the Singapore Savings Bonds (SSB), there are no allocation limits, and individuals can deposit larger sums comfortably.

Safety: Singapore’s stringent banking regulations ensure a secure environment for depositors. Additionally, the Deposit Insurance Scheme safeguards deposits up to $75,000 per account, instilling further confidence among investors.

Diversification: Fixed deposits offer a stable component to diversify investment portfolios, reducing overall risk exposure and providing a hedge against market volatility.

No Market Dependency: Unlike stocks or mutual funds, fixed deposits are not influenced by market fluctuations or economic conditions, offering consistent returns regardless of external factors.

Flexible Interest Payout Options: Some banks provide flexibility in interest payout options, allowing investors to choose between monthly, quarterly, or annual interest payments to meet their cash flow needs.

Disadvantages of Fixed Deposits

Liquidity: Investing in fixed deposits entails sacrificing immediate access to funds. Early withdrawal may result in minimal or no interest, although the penalty for premature redemption is typically marginal compared to other investment vehicles.

Interest Rates: While fixed deposits offer security, the prevailing non-promotional interest rates are relatively low, even when compared to low-risk alternatives like SSB.

Limited Growth Potential: Fixed deposits typically offer lower returns compared to riskier investments like stocks or real estate, limiting the potential for capital growth over the long term.

Impact of Interest Rate Changes: Fixed deposit interest rates are subject to change, especially in response to shifts in monetary policy or economic conditions, potentially affecting the overall returns on investments.

Currency Risk: For investors holding fixed deposits in foreign currencies, currency fluctuations can impact the value of returns when converting back to the home currency, introducing additional risk.

fixed deposit

Identifying Banks with Competitive Interest Rates

Determining the best bank for fixed-deposits involves considering both board rates and promotional offers. Opting for banks offering attractive promotional rates at the time of deposit is advisable. Interest rates vary based on deposit amounts, so investors should choose banks offering competitive rates suitable for their investment size.

Banks
Board Rate
Promotional Rate
Bank of China
1.70% (12 months)
Up to $500,000
3.05 – 3.10%
Depends on over-the-counter placement or mobile banking placement
CIMB
0.30 – 0.35%
minimum deposit of $5,000
3.05 – 3.10%
Depends whether personal or preferred banking
Citibank
0.10%
minimum deposit of $10,000
3.00 – 3.30%
(For 3-to-6-month Time Deposits only)
DBS
3.20% – For deposits between $1,000 and $19,999
0.05% – For deposits above $20,000
(nil)
HSBC
0.15%
minimum deposit of $5,000
2.90 – 3.10%
minimum fresh funds of $30,000 for 3/6/12-month Time Deposit
ICBC
3.05%
minimum fresh fund deposit of $500
3.05 – 3.10%
minimum deposit of $20,000 for over-the-counter and a minimum deposit of $500 via e-banking
Maybank
0.35%
minimum deposit of $1,000
2.60%
minimum deposit of $20,000
OCBC
0.5%
minimum deposit of between $5,000 and $20,000
0.1%
minimum deposit above $20,000
2.70% 2.90%
For a 6-month tenure only with a minimum deposit of S$30,000 (depending on physical bank branch application or online application)
2.80%
For a 12-month tenure only with a minimum deposit of S$30,000 via online application
RHB
0.40%
For deposits between $20,000 and $200,000 
0.55%
For deposits of $200,000 and above
3.00 – 3.05%
minimum deposit of $20,000
Standard Chartered
2.60%
3.00 – 3.20%
(for a 6-month tenure with a minimum deposit of $25,000)
UOB
1.50%
minimum deposit of $5,000
2.90%
(for a 6-month tenure with a minimum fresh fund deposit of $10,000)
2.70%
(for a 10-month tenure with a minimum fresh fund deposit of $10,000)

Considerations Before Investing

Once a bank is selected, investors must choose the deposit tenure. Additionally, understanding renewal options post-maturity and associated charges for early withdrawal is crucial. Familiarizing oneself with these details ensures informed decision-making and prevents unexpected fees.

fixed deposit rate singapore

Fixed Deposits via Robo Advisors

Innovatively, robo advisors like StashAway and Syfe offer access to fixed deposit products alongside traditional banks. Unlike banks, robo-advisors often do not impose minimum deposit requirements, making fixed deposits more accessible to a broader range of investors.

However, unlike banks, premature withdrawal from robo-advisor fixed-deposits may not be feasible, emphasizing the importance of investing funds that can be locked in for the agreed-upon duration.

Conclusion

In conclusion, fixed-deposits serve as a reliable and accessible investment option for individuals seeking stability and guaranteed returns in Singapore’s financial landscape. With advantages including simplicity, predictability, and safety, coupled with considerations such as tax benefits and loan collateralization, fixed-deposits offer a compelling avenue for wealth preservation and diversification. However, investors should be mindful of the limitations, including liquidity constraints, limited growth potential, and potential impacts of interest rate changes and currency risks. By understanding the nuances and weighing the pros and cons, beginners can effectively integrate fixed- deposits into their investment strategy, bolstering financial security and fostering long-term wealth accumulation.

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