3 types of people who should open a fixed deposit account in Singapore

When one thinks of putting money into a bank account in Singapore, the first thing that comes to mind might probably be the more well-known savings or current account.

However, not all Singaporeans are aware of the existence of fixed deposit accounts offered by most banks, or even by financial institutions.

But first, what exactly are fixed deposit accounts? Fixed deposit accounts are essentially extremely low-risk investments that earn a fixed rate of interest over a fixed amount of time. The interests are paid out at regular intervals, usually quarterly or annually.

So what are the best fixed deposit rates and who are the people who will benefit the most from opening a fixed deposit rate account in Singapore? Read on to find out if you are one of them!

The busy professional

If you are a working professional that does not have enough time to read up on the most profitable investments, then perhaps a fixed deposit rate account might be a better option.

For such people, time is money. Often, the busy working professional might not have the time and energy to research on the most suitable investment product or monitor their earnings.

The stock market is often reactionary and fluctuates to a large extent on a daily basis. Fixed deposit rates accounts offer both the security and ease-of-use as compared to other financial product alternatives.

How fast can one typically set up a fixed deposit account in Singapore?

For some banks in Singapore, opening an account is instantaneous as long as you register during their stipulated working hours. Hence, creating and maintaining a fixed deposit account is virtually hassle-free - perfect for the working professional with packed schedules.

The conservative investor

Some Singaporeans might have a smaller risk appetite when it comes to investing their hard-earned money.

Whether it is due to a smaller time horizon (for instance, you might be approaching retirement soon), or you simply cannot bear to witness your savings suffer the volatility of the stock market, it is completely understandable to prioritise securing your capital over higher rates.

As all fixed deposit accounts are insured by SDIC up to S$75,000, (even those offered by financial institutions and not banks), one can have the peace of mind that their money is well protected.

Even if the amount you are planning to place exceeds the SDIC insured limit, it is extremely unlikely that you will lose your deposits with Singaporean banks.

For more than a decade, local banks have dominated the rankings as the safest banks in Asia.

For the more conservative Singaporean investor, it is perhaps one of the safest investment vehicles one can invest in.

The short-term value seekers

Many Singaporeans are usually saving money towards something - it can be payment for a new car purchase in 6 months, a BTO deposit in three years’ time, or even your child’s university fees ten years down the road.

Regardless, these amounts of money are usually funds that must be kept safe for a certain period of time before you need to use them.

Fixed deposit accounts are a direct solution for this need. Many banks offer multiple options, each with different tenors and interest rates, usually between one month to three years.

The general trend of the relationship between tenor periods and interest rates is a proportional one: the higher the duration of the fixed deposit, the higher the interest rate you will enjoy as well.

By the time your payment for BTO deposit comes around, your fixed deposit would be just ready to reach maturity, with some extra bonus from the higher interest rates it has earned.

Luckily for you, we have compiled a detailed analysis of the best fixed interest rates in Singapore, where we listed down a comparison of minimum deposit amounts, tenure durations and interest rates of various banks and financial institutions.

Other alternatives to fixed deposit accounts

Admittedly, fixed deposit accounts have their own drawbacks - probably one of the biggest being the ‘fixed’ nature of these accounts.

Unlike savings or current accounts, there is usually an undesirable penalty for making an premature withdrawal which includes a hefty early withdrawal fee. Furthermore, you will also learn less interest, or even no interest at all.

Another drawback might be the opportunity cost of ‘locking up’ your money for an extended period of time. For the more investment-savvy, they might consider stocks or bonds instead.

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Perhaps you are someone who values the flexibility of withdrawals, or you are someone who is worried about a potential emergency that requires the use of these ‘locked up’ funds. In that case, there are a myriad of savings accounts offered in Singapore.

Do you prefer higher saving rates? No minimum balance requirements? Or are you a consistent saver? Don’t worry - we have you covered right over here.

Singapore fixed deposits are indeed a fantastic and secure way to grow your savings. However, some investors who are willing to take up more risks might baulk at the comparably measly interest rates offered by fixed deposit accounts.

After all, the highest rate (for a 36-months deposit) is just 1.40 per cent.

Meanwhile, the interest rate for SSBs (Singapore Saving Bonds) can be up to 2.71 per cent. For the S&P 500, the 10-year trailing return is an outstanding 13.77 per cent. Various other mutual funds and ETFs (exchange-traded funds) also offer higher, variable returns.

Regardless, there is no free lunch in the world.

The higher the returns, the higher the risk such product would entail.

For the convenience and safety of fixed deposits, some Singaporeans will definitely still find it their financial product of choice to grow their savings.

This article was first published in ValueChampion.