Header Ads

Art of Investing in Fixed Deposit



Investing in Fixed Deposit is unarguably the safest method to protect your money. You roughly get a 3% interest per annum, which is sufficient to cancel out the inflation rate. This is the most suitable type of investment for individual with low risk appetite.

For individual looking for higher rate of return, you may consider reading this.

For individuals looking for higher return, FD is definitely not your ideal investment tool. 

Nevertheless, for you and for me, basically everyone should have some emergency fund in FD. Why?
How to maximise Fixed Deposit interest Malaysia?


3 REASONS WHY TO SAVE PORTIONS OF MONEY IN FIXED DEPOSIT

1. BECAUSE IT IS THE MOST LIQUID FORM OF INVESTMENT
We can withdraw our FD savings anytime. Shall an emergency occur, this is the place where we should retrieve our fund. Yes, you could sell off your stock or bond too. But, what if the stocks that you own are undergoing correction, and you are having paper loss? Are you willing to sell it? Even so, it might still take 3 days before the money is banked in to you. Hence, FD is the fastest way to retrieve your emergency fund.
2. BECAUSE CASH IS KING
When the market is uncertain and you have no idea where to invest your money, instead of putting them in a normal savings account, invest them in FD. At least, you get a better rate through FD.
3. BECAUSE IT IS REALLY EASY
Nowadays, putting money into FD has never been easier. You don’t need to pay a visit to the bank in order to invest in FD. Most of the banking institutions now provide this service through their online banking system. For instance, Maybank2u and CIMB clicks.

Hacks you need to know about Fixed Deposit

ART OF INVESTING IN FIXED DEPOSIT

Although it is said that FD is the safest investment tool with guarantee 3% return annually, does everyone manage to get the so-called “guarantee” return?
NO.

In reality, many individuals fail to collect the “guarantee” 3% return. What’s wrong with them? This is because they do not know the right technique to invest in FD.

The concept of Fixed Deposit is fairly simple. Deposit an amount of money for a pre-agreed period, and you will be rewarded for a 3% guarantee return. However, if you withdraw the money in the middle of the process, sorry, you will get nothing in return. That basically means to get the interest, your money will be locked for a certain period of time.

And this is exactly why a lot of people fail to claim their 3% interest. Because they never make their financial plan ahead, and thus could not foresee what is coming. As a result, they deposited the money for a long period but then in the middle of process, emergency happen and they need money to solve it.

THE RIGHT TECHNIQUE TO DEPOSIT MONEY IN FIXED DEPOSIT

1. HOW MUCH TO DEPOSIT?
As statistics shown that 6 months is the average period for individuals to secure a job after being laid off. This signifies that within the 6 months, an individual might have no income at all. Therefore, your emergency fund in FD should at least be sufficient to cover your expenses for 6 months. Given your monthly expenses to be RM2k, then your FD should have at least RM12k.
How much emergency fund should I keep in Fixed Deposit?

2. HOW TO DEPOSIT?
Next, how to deposit this RM12k into FD? Should we deposit a lump sum for a year? Or how?

The best way to deposit this RM12k is by splitting it into smaller portions.

The easiest way is to separate this amount into 6 portions, RM2k each. Next, deposit RM2k each time for a gap of 2 month period. The purpose of doing this is to reduce the risk of pre-mature withdrawal. For example, consider yourself to have an issue in the mid of the year and you need RM3k immediately. If you split the FD amount earlier, now you can just withdraw two portions of it, but not all. With this, you will still be able to collect the interest for another 4 portions.

Invest in Nov 2015:
Fixed Deposit Investing Technique

As stated, the initial amount of RM12k is divided into 6 smaller portions of RM2k each. Each of the RM2k is then deposited with a gap of 2 months in between. In the picture, the maturity period of FD is stated below the amount. Do take note that M stands for maturity. Assume we invest in Nov 2015 (red color column). So, the portion A has a 2 months maturity period, and will thus mature at Jan 2016. Meanwhile, fund C with a 6 months maturity will have its interest given at Mac 2016.

After 2 months, re-invest in Jan 2016:
Fixed Deposit Investing Technique

After 2 months, it is now January 2016. Fund A that has a 2 month maturity period has now matured. Interest is credited to you. And now, it’s time to continue the cycle. So, you moved the money and deposit it for 1 year maturity period.

At the same time, you could also notice that now, being in January, you are only 2 months away from the nearest fund (4 months maturity), which mature in March 2016. Meanwhile, fund C, which is deposited for 6 months maturity period, now is only 4 months away. The gap of each fund is still 2 months.

However, the cycle does not end here. To fully finish the cycle, it takes a year. After 4 months from Nov 2015, which is March 2016, fund B has also matured. And so, we now renew fund B for a 1 year maturity. And the cycle goes on.

To make this cycle works, remember always to choose auto-renewal system for only fund that is deposited for 1 year maturity period.

How to withdraw?
And whenever you urgently need money, withdraw money from the deposit that has the longest maturity date. For instance, if you need money now, always withdraw the RM2k that has the maturity period of 1 year. If it is not enough, withdraw the RM2k that has 10 months left to mature.
In this way, at least, you need not to sacrifice your soon-to-mature deposit. As compared to depositing RM12k in a lump sum, this method will ensure you to earn the most interest out of your fixed deposit and at the same time, allow you to utilize the money in case of emergency.

Lastly, to further maximize your return, always pay a visit to check which bank offers you with the highest interest rate. May this link here assist you. Cheers!

No comments

Powered by Blogger.