Due to the safety of investment and guaranteed returns, time deposits are often among a favoured investment option for Singaporeans.
Currently, almost all banks offer time deposit accounts. Some banks even offer multiple time deposit investment options to choose from, which means it can be difficult trying to decide on the best time deposit account for your needs.
If you are considering a time deposit, we have listed some useful tips and considerations to help you decide:
Choosing the Right Investment Term
The two main types of fixed deposit investment terms are short-term and long-term. Usually the higher the term, the higher is the interest rate offered. Let’s see the types of options available:
Short-term: Generally, definition of short-term deposits is investments with investment period of less than one year, and can start from as short as one month.
Short-term time deposits are suitable for those who have extra cash available for a short duration and therefore have a quick savings goal, or who prefer flexibility and not to lock in their money for a long period of time. Some common short-term time deposit terms are 1 month, 3 months, 6 months and 9 months.
Long-term: Anything above 12 months is generally considered to be long-term, and in Singapore, time deposit terms usually go up to three years.
If you don’t need your funds in the near term and would like to gain from higher interest rates, then long-term time deposits may be a very good option for you.
When considering the term of a time deposit, be aware that many banks require a minimum deposit, which can vary depending on the term you choose.
Time Deposit Fees & Charges
In Singapore, banks don’t usually charge any establishment fees, setup fees or periodic charges with time deposit accounts. However, you should still check with your bank before you sign any contracts. However banks do have charges for statements of accounts, balance enquiry, withdrawal and change of maturity instruction.
You may incur a penalty fee if you decide to break out of your agreement with the bank earlier than the agreed maturity date.
Time Deposit Penalty Fee Calculation
Different banks have different mechanisms to calculate their penalty fees. Some may deduct a percentage off your interest rate, some do not pay any interest unless a time number of months has been completed.
Some banks may also charge what is known as a “break cost”. This is a one-off fee payable to the bank for not honoring your agreement. Break costs depend on a number of factors, including the bank’s current interest rate (at the time you want to access your funds), the interest rate on your time deposit investment, and the amount of money you have in your time deposit account.
The penalty for breaking your time deposit agreement can be significant, so it is often advisable that you are ready to lock in your money for the agreed period before you sign any agreement. If you are not prepared to do so, it would be wiser to choose a shorter term.
Time Deposit Interest Rate
When you invest in fixed deposits, the interest rate is the most important consideration. For any given term, the higher the interest rate offered the better. Currently the interest rates available in Singapore vary from 0.1 to 0.75% depending on the amount invested and maturity term.
Banks can however complicate matters by including special / promotional rates that may be short-term and / or with conditions attached. For instance, some banks offer a high interest rate only if you simultaneously apply for a different product offered by the same bank, or only if you are investing a large minimum deposit amount.
When you compare time deposit interest rates between banks, be sure to look out for these non-standard terms and conditions.
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