12 October 2009

Banks Offering Higher FD?

Hurray!!! Even though economic crisis is still following us closely, banks are willing to offers higher Fixed Deposit (FD) rate. Sounds good?

However, let us look at this "exciting" offers first before making any decisions. Normally, banks are offering enhanced returns for those who also buy unit trusts or insurance products. They bundle these products, in order to give consumers special FD rates. But, is that your cup of tea?

YES, if you:
  • need to buy an insurance and have extra money to put into FD
  • need to invest into unit trust and have extra money to put into FD
NO, if you:
  • want to buy insurance only
  • want to invest into unit trust only
  • do not want to lock-in your cash in FD

Do take note on the terms set by banks, such as the ratio of FD:UT / FD:Insurance.

For instance, the insurance products bundled are higher in premiums.

While for Unit Trust, ratio is directly affecting your return.

For example, RM100k are divided into 4:1 ;

RM80k FD and RM20k UT

Enhanced FD 3% and UT 10% (I'm very kind though)
Total profit is RM4,400 (80k x 3% + 20k x 10%)
However, the real return is 4.4% only (RM4.4k/RM100k)

If you includes the UT fees and the risks that you are taking, does it worth?

Also, some banks are giving special 1-month FD rate only instead of 1-year.
Do consult with your financial adviser for more. Your feedback is welcome.

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