Fixed Deposits

Make your money earn you money

4 minutes

What if you could use your savings to generate yourself income (while you do nothing)?

Almost every bank offers a product called a Fixed or Term Deposit while some refer to it as a General Investment Account. Using this product, you can invest a desired amount for a fixed amount of time in return for interest or profit.

This is one of the safest ways to invest your money as you are guaranteed to get it back at the end of the agreed term and receive some extra. Opening a fixed deposit account is a wise decision if you have already built up a good level of savings and have no immediate plans on using it.

Pro Tip!

You may wonder, why you can’t just keep your money in a savings account and forget about it? The main benefit of a fixed deposit is that the interest or profit is higher, often five times more, meaning that your savings will grow much more quickly.

Things to consider

1. Investment Amount

Identify what the offered interest or profit rates are – this will be available on their website or included in the Schedule of Charges

Some banks will offer a higher interest/profit rate as the investment amount increases

2. Duration

Decide on how long you want to open the account for

The longer the duration, the larger the interest/profit will be

3. Withdrawal

Unlike savings accounts, you cannot withdraw the money before the duration is over

Some institutions allow an early redemption (withdrawal) by charging a fee or forgoing any interest/profit earned

4. Interest/Profit Rate

Shop around different banks to identify the best interest possible

Some banks may offer different rates than advertised online so it would be better to contact them directly

The longer the duration, the higher the Interest/Profit will be

5. Fees & Charges

Although rare, some Banks will charge you a fee for setting up a fixed deposit.

There may also be fees for early withdrawal of your money. This could be either a fixed amount or waiving the interest/profit you have generated during that period.

6. Redeem vs Renew

At the end of the term, referred to as maturity, you may decide to either:
- Redeem – this means that when the deposit matures, the total amount and interest/profit will be transferred to an account of your choosing.
- Renew – this means that when the deposit matures, the total amount and interest/profit will be carried forward for another term.

As renewing carries forward a larger amount (initial investment + interest/profit), then the next payment will be higher.

Handy tips to know

You are not limited to just one fixed deposit. Having multiple fixed deposits with different amounts and durations will give you additional flexibility. For example, you may place one deposit of MVR 100,000 for 3 months on a renewable basis while having a second deposit of MVR 20,000 on a redeemable basis in case you need it quickly.

Banks may allow you to borrow money against your fixed deposit. This means that if you have a two-year fixed deposit of MVR 100,000 and need a loan urgently, you can still keep this money parked away safely (generating you income) and take out a loan using that as a security. Banks refer to this as “100% cash collateral” meaning that they Bank has virtually zero risk in lending you money. This is a good way to build up a credit score/reputation as well allowing you to apply for loans more easily in the future.

Only invest in long term fixed deposits if the interest/profit rates are higher than short term revolving ones. For example, it does not make any sense if you open a FD for 1 year at 2.5% instead of a 3-month renewing FD at 2.5% for a one year period – this way you will have quicker access to your funds as well.

Fixed Deposits paid out of profit (unlike interest) is variable each month. Visit the Bank’s website and analyze the trends to see how much they fluctuate on average. Via the profit-based method, you may stand to gain a higher rate of payout but also risk it going lower depending the Bank’s performance.

Pro Tip!

Shariah-compliant Bankers will publish their monthly annual rate of profit sharing/ratio regularly. Check back often and calculate on average how much you stand to earn versus a traditional fixed deposit

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