Is it wise to keep money in the fixed deposit?

The fixed deposit rate has been revised downwards several times in 2020. Despite recently the Bank Negara has announced the base rate remains unchanged, however, it is unknown whether the fixed deposit rate will reduce again. Interest rate reduction is required to boost the economy. While saving interest rate is low, people will spend rather than save. While loan interest rate is low, people will borrow money for investment and for business expansion. These are important to stimulate spendings and the economy.

While fixed deposit rate is low, the upcoming inflation is going to kill the wealth. 10 years ago, a Teh Tarik cost RM 1. In 2021, a Teh Tarik cost RM 2.20. The price has increased more than 200%. If we save RM 1,000 in fixed deposit 10 years ago, now, it is RM 1,350 at 3% annual interest. Why the value is not double? This shows that the inflation rate is in fact higher than the fixed deposit rate. If you keep your money in the Fixed Deposit without increase in your active income / saving amount, your wealth will decrease over time, i.e. you will become poorer because your affordability decreases.

However, by saying so, where to put the money if not fixed deposit? To make sure the money grows better, investment is the right place. Read more about investment trends here.

Investment is not a sure win, especially within short period of time. Market is always uncertain. Hence, for short term, putting your money into the investment is not suitable. For those who have cash flow issue, having emergency fund in fixed deposit is more important than investing. When one cash flow is not stable, investment fund will be withdrawn within a short period of time. Considering the management fees, brokerage fees involved, putting money into investment for people who have cash flow problem will be worse.

In conclusion, for those who have cash flow problem, they must first set up 3-6 months emergency fund in the fixed deposit. Fixed deposit can be easily withdrawn without loss. For those who are cash rich with emergency fund, it is indeed not wise to put the money into low-interest fixed deposit as the wealth will be reduced over time.

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