Fixed Deposit

Nowadays, we could find many types of fixed deposit offered by various banks. But all of time uses the same concept no matter the Term and Condition (T&C) they propose.

The theory of FIXED DEPOSIT,

1) You agree to deposit a FIXED amount of money for a FIXED time into the bank.
2) The bank agrees to pay you a FIXED amount of interest per annum.

Simple? Right
Low Risk? Right
Low Return? Right, but wait.....

The different kinds of fixed deposit offered today may give you good return but at a cost of longer deposit terms or higher deposit amount

UOB for instance offers Foreign currency deposit. which gives higher interest rate and also expose the customer to foreign currency appreciation or depreciation.

Confuse?
For example, you deposit S$8000 ( minimum deposit, normal FD S$5000). into a New Zealand currency FD. You get 7.38% P.A. for 12 months tenure (data from UOB website as of 4/3/08)

Your risk to foreign currency would be as below.

If NZD drop 2% against SGD at the end of 12 months, then your total earning would be 9.38% (roughly).

If NZD rise 2% against SGD at the end of 12 months, then your total earning would be 5.38%
(roughly)

But both is much more better than SGD FD rate at 0.7% p.a for amount below 50000

There are others more complicated FD based tools offered by bankers. Be sure to look throught the Term and Condition before you use them.

Happy investing.

By,

Yong Yeong Chow

Feel free to drop me comments on my articles at my email yyc83@hotmail.com
your comments are much appreciated.