How Bank Interest Rates Work On A Savings Account? Here’s A Mini Guide

A Savings Account functions like a Current Account—you use it to save your money and you get a debit card that allows you to withdraw money at any time.

The big difference between a Savings Account and a Fixed Deposit is in the interest rate. The former is typically lower ranging from 0.05% to 4.38% per year, but an FD offers higher interest rates depending on the banks. People often use FDs for long-term investments such as a house deposit, retirement or a big purchase.

However, unlike a Savings Account, you don’t get the freedom to withdraw your money at any time, and the tenure depends on the account you invest in. Some accounts can be as little as six months, others may last as long as five years.

The investment term and interest rate are fixed for an FD, so it’s much easier to calculate the return you’re expecting. But because of this, you’ll also need to fork out much more for the initial deposit, with many FDs requiring at least RM1,000 to start.

Why do Fixed Deposits or bank interest rates matter?

If you grew up with the general belief that you should save aggressively and spend conservatively to build your wealth, then that same concept may not necessarily work anymore.

Though saving consistently is still very important, you need to do so much more to build your wealth for the long-term.

On top of putting aside money each month, you’ll need to invest your money and ensure that you are investing at a higher rate than the rate of inflation for real impact.

Benefits of Fixed Deposits

• Investment returns is pretty much guaranteed
• Encourages savings
• Capital and returns are insured under the Perbadanan Insurans Deposit Malaysia (PIDM)
• Safe investment
• Liquidity

Cons of Fixed Deposits

• Flexibility

Alternatively, how do Shariah-compliant Fixed Deposits work?

Islamic Fixed Deposit-i or commonly referred to as Islamic FD is fundamentally different than its conventional peer. An Islamic FD has a predetermined profit sharing and Murabahah, or cost plus, which is an Islamic financing structure whereby the seller and the buyer agree to the cost and markup of an asset. The point of this is to remove any financial uncertainty.

This concept let’s investors generate returns from their funds without involving interest—in accordance to the principles of Shariah, which strictly prohibits the payment or acceptance of interest (riba).

This Shariah-compliant instrument provides an alternative to investors who are looking for an Islamic and ethical way of investing in Fixed Deposits without compromising their beliefs.

You can check the current board rates here.