Safe haven in fixed deposit

INDIVIDUALS are generally spoilt for choice when it comes to investing. There are many ways and products that can be used that would lead to capital appreciation.

But many people still feel more comfortable putting their money in fixed-deposit (FD) accounts because it feels like a safe haven to them, a surety even, that their “safe” monies will see growth over the short to mid-term period.

Why would investors choose to keep their money in FD accounts as opposed to other financial instruments, or even dabble in the share market where the capital gains are potentially exponentially higher?

Licensed financial adviser and syariah financial advisory for Excellentte Consultancy, Jeremy Tan, says it is because people feel that banks provide safety in the returns.

“FDs are like a guaranteed, and people feel safe because their returns are guaranteed by the bank. Also, if anything does happen to the bank, they are insured up to RM250,000,” he tells StarBizWeek.

However, should the bank fail, an investor that has more than the insured amount in their account will risk losing the remainder.

“The risk FDs have is if the banks close down. They may not get their dollar for dollar back,” says MyFP Services Sdn Bhd managing director Robert Foo.

Meanwhile, Tan says: “In terms of safety of returns, the risks are zero, unless the whole economy collapses but I don’t think Malaysia is heading in that direction.”

According to iMoney chief executive officer and co-founder Ching Wei Lee, placing money in a FD account is one of the safest forms of investment.

“Not everyone is willing to risk their money on stocks, properties or other similarly risky investments. For one, the learning curve is steeper: there is a lot to learn if you want to be a professional stock investor.

“On the other hand, a fixed deposit gives you the chance to just sit back and wait for your returns,” he says on Lawyerment, a web portal that provides self-help legal guides for individuals and businesses.

Ching notes that most financial institutions that offer fixed deposits are credible, stable and regulated by government agencies.

“Fixed deposits in Malaysia are also protected by Perbadanan Insurans Deposit Malaysia (PIDM), which is a Government agency established to protect Malaysians against the loss of their deposits placed with banks in the unlikely event of a bank failure.”

Tan adds that the profile of the likely investor that would keep his money in FD is usually risk averse, retired, or in their mid 40s to 50s prior to retiring.