Fixed Deposit vs Savings Account: Which to switch to?

There are those who prefer a savings account as it offers easier withdrawals. While others prefer fixed deposits because of higher interest rates. It's a dilemma many may face but are the two really interchangeable? In the end, it all depends on your purpose.

So how much of a difference does it make?

Say you’re one of the luckier people to have RM5,000 as your savings and would love to see it grow further. Which option will help you gain more money, a savings account or a fixed deposit? Whilst the answer is obvious – what isn’t so obvious is by how much.

Savings account

Before you dismiss the idea of savings accounts giving you more savings, it’s worth noting that there are savings accounts with an interest rate of 3% p.a. Although these accounts require that you have a significant amount of savings in your account to be eligible for it. Bank Rakyat offers an interest rate of 3% for those who save RM100,000 in their account. One savings account by Affin Bank has the same rate as their fixed deposit, which is 3.38%, but you will need about RM1,000,000 to be eligible for that and well, not all of us are millionaires.

If all you have is RM5,000, on average most banks give a rate of 0%-0.7% p.a., with the highest rate giving you RM35 per year with that amount. There are those like the Alliance Buddy savings account that give you up to 1% with RM5,000. The highest available you can get for your RM5,000 in a savings account is the Hong Leong Junior Savings account with an interest rate of 2.9% for the first RM50,000 although this is reserved for children below the age of 18. Not too sure if your child can have RM5,000 in their account, but if they manage to gather all their allowance savings, presents and ang pows up to RM5,000, they’d be getting an extra RM145 in their account.

So you will get something for your RM5,000 – just not much. Let’s see what fixed deposits can do for you instead.

Fixed deposits

Fixed deposits have a higher interest rate with anywhere between 2%-3.5%, with some being more. You may find the idea of saving in a Fixed Deposit account a little tougher as you have to keep a certain amount in your account at all time, or else lose out on the higher interest rate. But if you really want to put that RM5,000 away for your future instead, it’s a good option. You can always choose 1 month – 3 month FD’s for a little more flexibility but rates for these are usually lower than those for 6 and 12 months.

The average fixed deposit rate would be about 3% p.a., especially within the first year. So if you go with this, you would get RM150 for your RM5,000 savings although you can’t use that money straight off when you get it. The Mach Fixed Deposit by Hong Leong Bank gives a high interest rate of 3.7% p.a. and the flexibility to make partial withdrawals. This means you get RM185 a year and that’s definitely a higher amount than what any savings account can give you.

Should you get an FD?

There's no doubt that with a higher interest rate, the Fixed Deposit gives you more for your money. But if you need to constantly access your money, getting it may not be a good idea. It's still important to note that fixed deposits can be opened with as little as RM1,000 and at 3%, you earn RM30 per year just by saving it. In your regular savings account at 0.7%; you earn RM7, which in the end will be used to off-set the numerous ATM fees you’re charged.

If you really want to make your savings work for you, rather than just let it lie in the bank, why don't you use a fixed deposit that gives you that little extra instead? A savings account also makes it easier to spend due to its easy access, but if you really want to save for your future; look into saving in a fixed deposit.

This was brought you by MICHELLE BROHIER from RinggitPlus.com. RinggitPlus compares credit cards, personal loans and home loans to help Malaysians get more for their money.