Opening of fixed deposit account (Singapore dollar)

   Having a fixed deposit account is useful in more ways than one. First, it lets us put away some money for a rainy day. A savings account is different. Nowadays, with ATMs as well as debit Visa and Mastercard cards around, keeping our hands on what's left of our cash in the bank is quite difficult.

   A feature in the fixed deposit account - penalty charge for early upliftment (cancellation) - makes us think twice or even thrice before we decide to change our mind and cash in our fixed deposit so that we can splurge on that new palmtop or Chanel handbag we have been yearning for.

   The penalty charge for early upliftment of the deposit is there for a specific reason. Banks, having taken our deposit, must find ways to make productive use of the funds. So, they lend out our money, mostly to other banks in need of funds for a fixed period of time. Having lent out the money for, say three months because they know our fixed deposit with them is for three months, they can't just grab money out of thin air to pay us when we close our fixed deposit account before the maturity date. What they do is they get funds from other sources to pay us back and that incurs costs. So there you have it - the penalty charge. One consolation though, we will not lose any cent of the money we have put in. Only the interest is affected. 

   Banks do not have the same minimum amount requirement for opening a fixed deposit account with them. Some start at S$1000, others at S$5000. No matter what the amount, the period of deposit is generally 1, 3, 6, 9 or 12 months. Interest rates payable also differ at the different banks. Some offer you more because they can lend out the funds at a higher rate. That's where the banks earn the money. They take the deposit from you at, say 2% and lend out to others at, say 6%. In doing so, they earn the difference, which is 4%. If you look at our interest rate table, you will notice that these few months, banks pay less interest for deposits of large amounts vis-a-vis small amounts. But the interest rates are looking up in April 2000.

   Some banks even let you have automatic overdraft facility for the same amount that you have deposited with them. That is to say, if you deposit S$5000, you are allowed to borrow up to S$5000 from them if you suddenly find you are short of ready CASH. Not a bad idea, but I need to remind you at this juncture that your purpose of starting this fixed deposit is to stash the money safely away - from others and YOU.

   So, if you have the discipline to start a fixed deposit account, I suggest you open one, request for automatic renewal and then throw away the advice so that you will not be tempted to take out the money. By the way, nowadays, the advice is just a piece of paper. You need not present it to cash in your deposit.

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