What are they?
Fixed deposits (FDs) are safe instrument to earn interest on cash you'll not need for awhile. You place with a specific sum of money for an agreed term and interest rate offered by the bank. Larger deposits or longer terms of duration are rewarded with higher interest rates. In general, the rates offered are higher than those of regular deposit accounts. At the end of the agreed term, you can take your deposit amount and earned interest or you can renew the investment.
Foreign currency FDs allow you to earn interest rates that are generally higher than those available in Singapore. Foreign currency FDs behave exactly as regular FDs with one exception: you need to convert your money into the target currency when you invest and back into any currency you want when you redeem. The fact that exchange rates move over time add an element of uncertainty to these investments.
Another available option is to use your CPF to invest in approved fixed deposits. Under the CPF Investment Scheme, CPF balances in excess of the minimum required sum can be invested into FDs with approved financial institutions. The normal minimum investment in a CPF-approved FD is S$5,000.
How do they work? Deposit: After finding an FD that meets your needs, you'll need to deposit sufficient funds with the offering institution. If you are investing in a foreign currency FD, you may need to pay for a foreign exchange transaction (to convert into the FD currency). If you are investing CPF monies into an approved FD, you'll need to provide your CPF account information to the offering institution. Your CPF agent bank will check that you are in compliance with any guidelines and restrictions before transferring your funds. Withdrawal: You can withdraw your funds upon maturity of your FD. You will be given your investment amount plus all accrued interest. Should you need to withdraw your funds prior to maturity, you are likely to incur a penalty. These usually imply the forfeiture of a portion of the interest you've earned. When you withdraw your funds from a foreign currency FD, you'll likely incur a fee for conversion back into Singapore dollars. Renewal: Most FD investments renew automatically, so you must pay attention to the maturity date. Your bank may not notify you when the maturity date is near. Thus, the burden falls on you to notify the bank of your wish to withdraw the funds or reinvest in a different FD. Foreign Exchange: When investing in foreign currency FDs, you'll need to fund the deposit with the target currency. Therefore, you'll normally conduct a foreign exchange transaction to convert Singapore dollars into the target currency. This transaction usually implies a fee. Upon withdrawal, you'll need to reverse the transaction (possibly incurring another fee). Over the term of the FD, exchange rates may move in your favour or against you. This implies greater uncertainty regarding the actual return you may receive, including the possibility of a larger gain or a partial loss.
How do I find the best deal?
When searching for the right FD, keep these tips in mind:
Withdrawal Restrictions:
Check to see if the bank imposes any penalty for early withdrawal of your funds.
Term of the Deposit:
Select a length of time that ensures you'll not need to access the funds before the maturity date.
Foreign Exchange:
Ask to see what fees will be applied to convert your holdings into the target currency and back into Singapore dollars upon maturity.
Interest Rate:
Compare interest rates from various providers with the knowledge of their early withdrawal restrictions and other applicable fees.
Tax Implications
Interest income earned from FD investments is taxable unless:
1. You are a non-resident depositor earning deposit interest from approved retail banks.
2. You are a non-resident depositor earning deposit interest from approved Asian Dollar Bonds.
This document is published for general information only. It does not have any regard to any specific objective, financial situation or the particular needs of any specific person who may receive this document. This is also not intended to provide any recommendation or advice on personal investing or to be relied upon as financial planning advice. It is not designed as a substitute for professional advice. You may wish to seek advice from your financial advisor before making any decision. Any opinion, view or estimate presented is subject to change without notice and is made on a general basis and is not to be relied on by you other than for general information purposes. Any reference to any specific company, investment product or asset class in whatever way is used for illustrative purposes only and does not constitute a recommendation on the company, investment product or asset class. While all reasonable care has been taken in preparing this document, no warranty whatsoever is given and no responsibility or liability is accepted for any loss arising directly or indirectly in connection with or as a result of any person acting on any information, opinion or statement expressed in this document.
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