Millennials in Singapore have already started saving up for the future. Among all the investment products available to achieve your lucrative financial goals, fixed deposits are one of the low-risk investment options to choose from.
Fixed deposits in Singapore is considered to be a secure, safe, and convenient way of capitalizing on extra cash for your future within a specific period. So, to help you decide whether a fixed deposit is right for you, here are some advantages and disadvantages to grab the best benefits at hand.
Advantages
- Guaranteed returns
Fixed deposits are fit for anyone regardless of age or skills and are different from the stock market. Unlike the stock market, fixed deposits do not have price volatility, making it a safer investment option for the investor. If you are a risk-averse investor, then the fixed deposit is the right investment product for you. For instance, if you are investing SGD 2000 for a year and the interest rate is 1.8% at maturity, you will get the exact SGD 2018 after a year. Therefore, holding stocks for long is not a guarantee of higher return, but fixed deposits’ higher returns are guaranteed and are not subject to prevailing market conditions.
- Have higher interest rates
When you compare fixed deposits with ordinary saving accounts, they provide more interest. The current interest rate for 2019 with a minimum deposit amount of SGD 10,000 is 1.9% p.a. On the other hand, an ordinary savings account will only provide up to 0.80% interest p.a. You can even open several accounts in different banks to maximize the offered benefits with an investment as low as SGD 1000.
- Virtually risk-free
Fixed deposits are usually nearly risk-free. Unless the bank does not collapse, you will get your money back along with interest. But, thanks to the Singapore Deposit Insurance Corporation (SDIC), your deposits can also be insured up to SGD 50,000 even if your bank collapses.
- Not taxable (in Singapore)
According to the Inland Revenue Authority of Singapore (IRAS), interest received from the fixed deposits with the approved banks or licensed finance companies in Singapore is not taxable. The licensed finance company includes commercial banks and merchant banks from the list of approved banks and finance companies in Singapore. It means that all the income that you might gain from the fixed deposit is not taxable and need not be declared as long as IRAS approves a bank or a finance company.
- Convenience
Fixed deposit is the most flexible low-risk investment that allows the investor to select the most suitable tenure as per his investment needs. The longer you hold the money in a fixed deposit account, the longer you can enjoy the benefits that it provides. Many types of fixed deposit options offer you the convenience to select the tenure according to your needs.
- Promotes the habit of saving
People who are looking for an option to save for retirement can choose fixed deposit. By locking up the money for a certain period, fixed deposits help you save better. If you want to limit your access to your money, fixed deposit will help you promote the habit of saving. Whereas, a savings account will enable you to withdraw any amount at any time and prevent you from reaching your goal of wealth appreciation.
Disadvantages
- Pays relatively low-interest rates
The main disadvantage of choosing fixed deposits over other investment options in Singapore is that they provide a relatively low interest rate. For instance, when you compare the low-risk investment products such as Singapore Savings Bonds (SSB), they are relatively low. When you compare fixed deposit with SSB, SSB does not charge a penalty for people who wants to terminate the account before the committed term, and the cash is readily available during the emergency.
- Increase despite inflation
Inflation means the erosion of the value of money over time. When you invest in fixed deposit, you need to consider the value of money in the future that is mostly affected by inflation. Usually, fixed deposits, along with gold, have failed to beat inflation by a margin, barely creating any real return. Fixed deposits give performances that are more or less mirror inflation. The cost of living in Singapore is continually rising, thus increasing inflation. Therefore, the value of the return on your investment in your fixed deposit account might be lower than what you will get with other investment products.
- Maintain a minimum amount
Fixed deposit’s initial account opening requires SGD 1000 depending on which bank you are investing in. Whereas, SSB requires SGD 500 as the minimum amount.
- Cannot withdraw before maturity
Fixed deposits have a maturity date. If the money is withdrawn before the maturity date, your interest rate can be forfeited or you need to pay the penalty. This means that you must sort out other means of sourcing finances in case of an emergency. If the cash is locked in the bank, you might have no chance to use the amount when a more lucrative investment comes in your way. For instance, you might even miss the opportunity to purchase to buy a property on sale because the fixed deposit has locked your savings in the bank.
With so many investment options to choose from, you can easily plan your retirement. If you are a risk-averse investor, fixed deposits should be your pick. So, invest in fixed deposit and secure your future for retirement.
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