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#27 Things You Think You Know About Fixed Deposits But Not Actually.

Updated: Jan 5, 2022

Fixed deposits or also known as FDs may sound quite familiar to those who know about the world of banking, investing, and money savings. But for those of you who may be hearing it for the first time, here are some simple explanations for you.

Fixed deposit can also be considered as a savings account that allows you to choose an investment period that can range from 7 days up to 10 years.

How does it work?

This is a simple explanation.

When you make a fixed deposit, the bank will take your money and will give a small return compared to if you make a regular savings account.

Is a fixed deposit a savings or investment account?

But wait, is a fixed deposit a savings or investment account? Depends on your understanding as it can be both. The fixed deposit will keep your money according to the chosen time and at that same time, it also can be a form of investment. But an investment with the lowest risk. No wonder many people want to make this fixed deposit. Unfortunately, the money you keep in a fixed deposit is not money that you can use freely because it has been locked in the period you choose. But don’t worry because a fixed deposit will give you a fixed return depending on the period you choose and the bank of your choice whether it has a high or low interest rate. Maybe the return is not that much but a little bit better compared to being kept in regular savings account, right?

Did you know that fixed deposit is the top 3 most trusted investment types to multiply your saving fund in Malaysia after unit trust and investment-linked insurance plan (ILP)? Yes, looking at how most commercial banks often promote fixed deposits shows that it is an easy form of investment for all types of groups. There are even some banks that offer these fixed deposits to different types of groups with different benefits. For example, a fixed deposit for senior citizens has more features and benefits than a junior fixed deposit. According to bank employees, many of those who make fixed deposits are young people who want to save money for the car down payment.

Is a fixed deposit complying with Islamic sharia?

This fixed deposit sounds a good deal right, but have you ever wondered if it complies with Islamic sharia? Do not worry this article will help you. According to The Scholars of the Standing Committee for Issuing, Fatwas said: The interest which the banks pay to depositors on the money that they deposit in them is regarded as riba (usury) which is not Halal.

Oh no then what should you do if you wish to invest, but do not want to violate Islamic laws against earning interest. Simple. You can use the Islamic Fixed Deposit (IFD).

Islamic Fixed Deposit is usually available at any Islamic bank branch in Malaysia. Fixed deposit Islamic is a savings investment that complies with Islamic sharia and is guaranteed halal because it has a different approach to fixed deposit conversional. So, how does an Islamic fixed deposit work? Here the explanation: -

  1. Fixed deposit Islamic are based on the concept of Commodity Murabahah.

  2. You are required to appoint an Islamic bank as a legal representative or agent to purchase commodities from commodity traders in cash using your investments.

  3. After you buy the commodity, you must sell it back to the bank at a high price to make a profit, credited to you on a deferred basis throughout your placement period.

  4. In turn, the Islamic bank can also make a profit by selling the commodity to other commodity traders.

The context of this specified commodity refers to assets for purchase and sale between you, the bank, and commodity traders such as palm oil, copper, and other raw materials. And here a fun fact for you, Islamic fixed deposits continue to offer higher interest rates compared to conventional fixed deposits. So how, does the information help you who want to make a fixed deposit that complies with Islamic law in addition to getting a fixed return?

Is fixed deposit security guaranteed?

But you may still be sceptical about the safety of your money as you must keep it based on a set of times. Then have you ever heard about PIDM which stands for Perbadanan Insurans Deposit Malaysia? Yes, PIDM will protect your money if something undesirable happens to the bank you use to make fixed deposits. So, you do not have to worry about losing your money at all.

However, you should know that not all commercial banks in Malaysia are members of PIDM. If your bank is not a member under PIDM then your money will not be covered by PIDM. Financial institutions like Bank Rakyat, Agro Bank, and BSN are not covered under PIDM in case if you did not know about it. But again, don't worry because the financial institutions stated above are regulated by both Bank Negara Malaysia and Suruhanjaya Koperasi Malaysia, so you get direct protection from our Ministry of Finance instead.

Is fixed deposit investment relevant in 2021?

See, a fixed deposit is indeed an investment with the lowest risk. But right now, you might think is it true that fixed deposits are a relevant investment in 2021 when the world, including Malaysia, is facing a pandemic situation that is so severe that the economic structure is deteriorating?

The answer is no. Doing a fixed deposit is a bad idea to do in 2021 because with the current economic situation, keeping money in the bank is one of the worst things to do. This is because banks will cut the interest rates and cause the value of returns for us to be less. So do not leave your money in the bank for the time being.

What is the solution to the situation above?

So how to fix this? First, you can build up your investment portfolio. The investment portfolio is referring to several different investments under it. So, what kind of investment you can do? It depends on you. You can make your research about what types of investment that could give you a great return in this worst year.

For example, you can invest in gold, a real gold bar. Or maybe investing in property or stock or maybe in cryptocurrency. Then the second thing you need to do is investing in yourself because you might already know that you did not get any ideas of what kind of investment stated above and how it works right? So, do your research and learn new things. That is how you are investing in yourself.

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