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Fixed Deposit
Fixed deposit also know as term deposit are financial instrument offered by banks and certain financial institutions in Singapore. Such deposit are currently insured for up to S$50,000 by the Deposit Insurance Scheme under Singapore Deposit Insurance Corporation (SDIC). Tenor for the deposit typically varies from 1 month to 3 years with higher rate for longer holding duration.
Why choose Fixed Deposit ?
Product tenor are short and Interest can be paid upfront upon making the deposit or upon maturity of deposit as determined by the bank or financial institution. Early withdrawal usually does not incur any loss on principle sum, however interest may be clawed back if paid upfront to the depositor. However due to the short duration of the product and principle, investor who foresee a suddenly need for their funds will find such instrument attractive.
How much of my money should i place in Fixed Deposit ?
At InterestGuru, we feel at a reasonable amount for fixed deposit placement should be 12 months of typical monthly expenses or 6 month of salary, wherever is higher. Funds that have a high chances of being used over the next 1 to 2 years should be place in a fixed deposit so as not to incur risk of principle sum should you really need to withdraw the fund out.
Excessive amount in fixed deposit are not recommended as the lower interest rates mean a loss in oppotunity cost as the excess funds can be used to generate potentially higher return via longer tenor products such as endowments or higher risk investment products.
Advantage: Being able to withdrawal with no penalty on principle any time you need is a big plus point as well as flexibility of choosing preferred ternor ranging from 3 month to 3 years. A guaranteed fix amount of predetermined interest upon maturity is another plus point which ensure that short term planning does not get disrupted.
Disadvantage: Low interest yield enviroment means that interest recieved may not keep pace with inflation. Excess amount in fixed deposit reduce oppotunity cost as funds can be channeled to other financial instruments.