Everything You Need To Know About Fixed Deposit in Singapore

Everything you need to know about this low-risk form of investment that can help you meet your financial goals.

Introduction

Investing is a surefire way to grow your money and achieve lucrative financial goals in time. Choosing the right investment product is crucial to ensuring the success of your venture. Fixed deposits are considered a secure, safe and convenient way of capitalising on extra cash you have, which you will not use in the next few months or years. 

Fixed deposits in Singapore come with different promotions for depositors to grab and maximise the benefits. As a low-risk investment, fixed deposit accounts are recommended to those who have the chance to set aside a certain amount of money within a specific period.

 

Money Growth
Your savings grow over time through fixed deposit. Image credit: Maxpixel

 

What is fixed deposit?

Fixed deposit (FD) is a form of investment facility offered by financial companies that provide interest within a fixed tenure. Also called time deposit or term deposit, fixed deposit accounts allow you to put your savings for a set amount of time without touching it. The longer you promise to leave your money in the bank, the higher the interest rate you’ll get.

Most people opt for this type of investment because it comes with higher interest rate making their savings grow more significantly over time at relatively lower risk. FDs are often considered as safe options because they guarantee returns which will not be affected by market fluctuations.
 

What are the types of fixed deposit?

FDs come in various types to cater to different needs of an investor. Depending on the features, you may either get higher or lower interest earnings. Here are a few types you can opt for: 

  • Conventional fixed deposit –Conventional FDs are known as Time Deposit (TDs). TDs usually provide higher interest rates compared to Savings Accounts. You may choose tenors from 1 week to 36 months in which the returns are guaranteed. With TDs, your earnings are bigger when you hold the deposit for a more extended period. 
  • Foreign Currency Deposit – Foreign currency fixed deposit are available from one week to one year using a currency different from the Singaporean dollar. Foreign Currency FDs provide higher returns compared to TDs but are subject to foreign exchange risks. 
  • Islamic Fixed Deposit – Islamic fixed deposits conform to the Murabaha principles of Shariah law. This involves the sale of commodities at a specific price determined by the bank. Profits are identified upfront and should be payable within one calendar day after cash payment has been made or cheques have been cleared. Profit rates of 1.25% above are usually granted to customers more than 55 years old. 
     

What are long term and short term fixed deposits?

FD investments are categorized according to the length by which your money will be held in the bank. In general, depositors earn higher interest rates once they choose to set their money in their accounts for a longer period. 

  • Short-term FD – Short-term deposits are investments in less than a year. Sometimes the range can even be as short as 30 days. People who have extra cash for diminutive duration can open a fixed deposit account that can earn them better interest rates. The primary objectives of short-term deposits are flexibility and the opportunity to achieve quick-saving ends. 
  • Long-term FD – Long-term fixed deposits usually range from 12 months to three years. Those who do not need their funds in a near-term can choose to open an FD account that can pay higher interest rates compared to savings accounts. 

When choosing between short-term or long-term fixed deposit, consider the fact that banks require a minimum deposit amount depending on the length of term you want. 
 

Fixed deposit versus savings account

Fixed deposit and savings account can certainly help you save and earn at the same time. Both facilities allow you to commit a certain amount in the bank that will grow due to interest repayments. For those who are still confused about these two financial products, here are a few differences you should note: 

  • FDs can save you from spending due to its lock-up period bounded by terms and conditions. On the other hand, the money on your savings account can be accessed in times of emergencies or as needed. 
  • Savings accounts pave for making compounded interest – you get to earn from your investment, while FD interests are generated after the term of maturity. 
  • Fixed deposit interest rates are consistent from the beginning up to the end of the term. Savings accounts official cash rate can affect your earnings. 

Choosing between FD and savings account is not at all difficult if you have set your goals and you are aware of your financial conditions. The ability to create a compelling budget plan can help you decide whether you invest on term deposits or you just want to set aside some money in a savings account which is accessible anytime or in case of emergencies.
 

Fixed deposit versus Singapore Savings Bond

Singapore Savings Bond (SSB) is totally different from fixed deposits since SSB is offered by the Singapore Government and FD is available from banks. 

To give you a better view, here are a few points that highlight the advantages and disadvantages of these two financial products: 

  • SSB does not charge a penalty for people who decide to terminate their account earlier than the committed term. As we all know, banks have charges for pre-closure of FD accounts and interest returns might also be forfeited. 
  • Since no penalties are imposed on SSB, cash can still be readily available in case of emergency. FD owners have to endure the tenure, or they have to face the consequences of premature withdrawal. 
  • FDs offer higher interest returns compared to SSB, but the latter also promises bigger yield towards maturity of the account. 
  • FD initial account opening requires $1000 while SSB is at $500
  • Compared to FD, SSB does not promise consistent returns monthly, so depositors do not have the luxury to plan
     

Can I top up the fixed deposit amount?

Once you have decided how long would you want your money untapped and which type of fixed deposit account you want to have, you can no longer add or withdraw the amount you deposited. This means that your investment will be locked up with the bank for the duration you chose. 

You can’t top up your fixed deposit account until you reach your set date. But what you can do is open another fixed deposit account with the bank with your new funds. You can also check out other bank offers and promotions and open a new FD account to grab the best benefits at hand. 

How does the bank calculate the interest return on a fixed deposit?

The interest rate is one of the primary factors that help you decide which fixed deposit type and bank to choose. Banks multiply your deposit amount by your interest rate and then by how long you’re keeping the money in the bank so to get the interest return. 

In Singapore, interest rates for fixed deposits vary from 0.1 to a maximum of 0.75% depending on the maturity of the deposit and the invested amount. 

Here is the formula for calculating the interest return on fixed deposits: 
R = return interest
P = amount deposited or principal
r = rate of interest per annum
T = tenure of the account
Formula: R=PrT/100

Imagine you deposited $5,000 and locked it in for 18 months with interest of 0.5% p.a.

P = $5,000
r = 0.5%
T = 18 months
R = ($5,000 x 0.5% x 1.5 years)/100
R = $37.5

Your interest return after 18 months is $5000 x 0.5% x 18/12 = $37.5

Before you decide to invest, compare interest rates offered by different banks in the country. 

 

 

What are the advantages and disadvantages of fixed deposit?

Fixed deposit investments always guarantee returns, but you still should know its advantages and disadvantages to make sure that this facility suits your needs. 

Advantages

  • FDs earn higher interest rate compared to the ordinary savings account. 
  • Fixed deposits are safer compared to property investment or the stock market. 
  • Your money gets protected by the Singapore Deposit Insurance Corporation (SDIC)
  • The minimum deposit can be as low as $1,000 depending on which bank you want to invest in. The affordability of required deposit amount can even allow you to open several FD accounts on different banks to maximize the offered benefits. 
  • You can always invest in a currency you want since most banks in Singapore have foreign currency fixed deposit offers. 
  • You can also opt for the shortest term, which is a month, to experience the benefits. Once you have weighed on the pros and cons, you can always choose the longer term for bigger earnings. 
  • Fixed deposits can be used as collateral if you apply for other bank facilities 

Disadvantages

  • Money deposited could not be withdrawn until account maturity. This means that you must sort out other means of sourcing finances in case of emergency. Should you decide to withdraw, bank charges additional fees and your earnings might be forfeited. 
  • Deposited money can be susceptible to fluctuations
  • Cash is locked in the bank and you have no chance to use the amount should a more lucrative investment comes your way. Moreover, you might miss the opportunity to purchase a property on sale because the bulk of your savings is held in the bank.
     

How can fixed deposits become loan collaterals?

You have higher chances of getting approved for loans and other bank facilities if you have FD account. Any loans become an overdraft facility which uses your fixed deposits as a guarantee.  
Singapore banks also offer FD-linked mortgages to help depositors grab their dream homes using their FD accounts as security. 

FD collaterals come with lower interest rates and faster processing of the application. There are times when the earning from the FD account are used up to compensate for the interest charges entailed with the loan. 
 

Who can open a fixed deposit account?

In Singapore, you’ll usually need to be at least 18 years old to open a fixed deposit account, but some banks might let open one from 12 years or with a legal guardian or parent as guarantor. It doesn’t matter if you’re Singaporean, PR or foreigner, but you will need to have a minimum of $1000 to $5000 to deposit. Of course, your bank has the final say, so be sure to check with them about their specific requirements.

What do I need to open a fixed deposit account?

You’ll need these to open your account:

  • Singaporean/PR: You just need your NRIC
  • Foreigner: You’ll need a passport and proof of address as well as an Employment Pass, Dependent Pass, S Pass, Student Pass or Long-Term Visit Pass.
     

How do I apply for a fixed deposit account?

Applying for a fixed deposit account can be done by visiting a branch of the bank of your choice or through online means.

  • Branch: If you like to do things the old-fashioned way, make an appointment at your local branch, then show up with your deposit (cash or cheque) and your required documents.
  • Online: If you already have a savings or current account at the bank, most banks (including OCBC, DBS, Standard Chartered Bank, CIMB and Maybank) let you open a fixed deposit account in a few clicks. Log in online, open a fixed deposit account, transfer the deposit amount from your savings or current account and choose how long you want to leave the money there for.

A bank can refuse application for FD account opening if the currency to be used is not acceptable, the payee’s name is not the same as the account name or the cheques and other payment instrument belongs to someone else other than the applicant. 
 

Are joint names allowed to open a fixed deposit account?

Most banks in Singapore allow joint names to a maximum of four account holders. The account operations shall depend on the instructions provided by the primary account holder, which should have been signed by all joint account holders during the opening of the account. 

Is there any penalty if I want to withdraw before maturity?

Yes. Fixed or term deposit accounts prematurely closed do not ordinarily exist in Singapore. However, requests for early account closure can be made to the bank. The bank, then, reviews the application and if approval is granted, no penalty will be imposed. 

You may incur an early withdrawal fee if you want to close your fixed deposit account or make a withdrawal before maturity, which is interest return you have gained. You may lose your interest increased partially or entirely. Take note that you may receive lesser than principle if your fixed deposit is foreign currency.

In general, banks in Singapore do not charge any fees when the withdrawal of amount is within 30 days after the opening of the account. Other terms and conditions apply depending on the financial institution’s policies. 
 

What happens once my fixed time is up?

You can give your bank some instructions when you make the deposit (or any time before the term is up) and tell them what you want to do when the fixed period ends. You can ask them to:

  • Rollover your deposit and the interest you accrued
  • Withdraw your deposit and the interest you accrued
  • Rollover your deposit but withdraw the interest you accrued

If you don’t tell the bank what you want to do with your money once your fixed time is up, the bank will automatically renew your fixed deposit for a similar period at the current market rate for a deposit of that amount and time.
 

How do I get my deposit back after the time is up?

When you make your deposit (or at any point before your fixed time is up) just let the bank know which of these options float your boat:

  • Transfer to your savings or current account with the same bank
  • Transfer to someone else’s savings or existing account with the same bank
  • Get the cheque by mail or collect at the branch
  • Pick up cash at the branch
     

Is my money protected if my bank fails?

Yes. Your money is protected if you bank with a member of the Singapore Deposit Insurance Corporation (SDIC) scheme. Under the insurance protection scheme, if your member bank or finance company fails, all your eligible accounts with that member are combined and insured up to S$50,000.

Read more about it here.

What factors should be considered before opening a fixed deposit account?

Here are the things you should consider if you are planning to invest in FD accounts:

  • Investment objective – What is your goal in putting your money in a fixed deposit account? If you want to earn a modest amount out of your cash, then FD is advisable. If you are aiming for bigger returns, then search for other investment products like stocks and foreign exchange. 
  • Your age – Investments come with age.  Young people have disposable income, a few responsibilities and can take higher risks. On the other hand, older individuals will have to reflect on retirement plans, savings, mortgage and other obligations. The types of investments usually depend on a person’s age and his ability to stand complex financial situations. 
  • Knowledge of financial products – How broad is your knowledge of bank facilities and investment products? Do you know the differences between each investment scheme that your bank officer offers you? Understanding the nature and impacts of your investments can help you make that crucial decision of putting your hard-earned money in or diverting it to suffice other needs. 
  • Liquidity – How quickly can you get your money back after opening the fixed deposit account? Will you be able to cover other expenses after letting your money sit in the bank for months? What other financial sources do you have to support your needs? Fixed deposits are passive income sources for those who can cover their daily expenses and save at the same time. 
  • Interest rates and payment schedules – Different financial institutions offer different interest rates and payment schedules. For instance, some banks have low-interest rates but have regular and short interest payments on a monthly or quarterly basis. Other banks offer higher repayments but are only made annually or after the account’s maturity. 
  • Risks – In the world of finance, you should always remember that risk is directly proportional to gains. The higher the risk, the more prominent are the chances to earn more; and vice versa. Fixed deposits are safe; thus, income is lower compared to other forms of high-risk investments. 
     
Last update on Apr 05, 2019