Fixed Deposit: What is It and How Does It Work?

It doesn’t matter if you’re someone who is living from paycheck to paycheck or someone who is earning a great income. Thing is, if you don’t master good saving habits, chances are that at the end of every month, you still won’t see progress in your savings.

 

But don’t worry! If you’re looking for a safe way to grow your money, you’ve came to the right place, and you’re definitely reading the right article. In this piece, we’re going to explain how a fixed-deposit account can help and why it’s relevant for everyone. Ready to grow your savings? Let’s get to it!

Types of Fixed Deposit Accounts

First, the fixed deposit account works similar to a savings account.The core purpose of it is to keep your money where it should be, which is of course, a place that has an opportunity for cash growth and is secure. The main difference is, placing your hard-earned money into a fixed deposit account can earn you a higher interest rate. Now, there are two main types of fixed deposit accounts – one for short-term and another for long-term. So why is this important? Well, in case you don’t already know, when you decide to stash your money in a fixed deposit account, you’re not allowed to withdraw it for a certain period. If you do, you’ll lose all the interest rate you’ve intended to earn. Which is a waste, so, let’s not do that.

Where you put your money depends on your financial goals. Is it a short-term goal like saving for a trip or a long-termed one such as planning for early retirement? That’s completely up to you! A short-term fixed deposit account could have a deposit period of one month to a year and is perfect for you if you’re looking to achieve a quick savings goal. However, keep in mind that a short-term deposit usually comes with lower interest rates.

On the other hand, a long-term fixed deposit account have deposit periods of up to 5 years. Hence, if you’re planning to keep your money in the account for such a long period of time, make sure that this sum of cash is an amount you won’t need to use in the next couple of years. Additionally, long-term fixed deposit accounts can also earn you higher interest rates so it’s perfect for long-termed goals such as getting a house.

On a side note, you should keep in mind that interest rates differ from bank to bank. So, make sure that you don’t settle on the first one right away. Instead, do a little more research to see which bank can offer you the highest interest rates! Also, some banks allow you to have a fixed deposit account with the currency of your choice which is either in USD or Cambodian Riel. Here’s an example to give you a better idea of what you could be earning for both types of deposit tenures.

Deposit Term Indicative Interest Rate (% p.a.)
1 month (short-term)3.50
2 months (short-term)3.70
3 months (short-term)4.00
6 months (short-term)5.00
9 months (short-term)5.50
12 months (long-term)6.00
Above 18 months (long-term)Negotiable

The Benefits of Fixed Deposit Accounts

Your Investment Returns are Guaranteed

If you’ve doubts about putting your money in the bank, we totally understand. These concerns are often caused by misconceptions regarding financial institutions. However, rest assured that your money is safe! To add to the good news, unlike investing in stocks or bonds, when you place your money in a fixed deposit account, your investment returns are guaranteed as long as you do not withdraw your cash before the maturity date. Yay!

 

You’ll Get Higher Interest Rates

Placing your money in a fixed deposit account usually earns you a higher interest rate compared to a savings account. In fact, the longer you keep your money in the fixed deposit account, the more interest rate you’ll earn! And the more interest you earn, the greater your savings will be!

 

Here’s an example of how much you’ll receive at the end of your deposit term. If the interest rate offered is 4.25% per annum for a 12-month fixed deposit term, a deposit of USD 1,000 will earn you a total of USD 42.50! Not bad for doing pretty much nothing but keeping your money in the bank, if you ask us!

 

You Can Enjoy Regular Earnings

Depending on the fixed deposit account you’ve applied for, you can earn interest on the money you’ve deposited over a monthly, quarterly, or yearly basis. If you’re looking to maintain your principal amount, you can request for an ‘interest pay-out only’ option. What this simply means is that your principal amount would be rolled over to the next term while you withdraw and enjoy the interest earned!

 

You’ll be Encouraged to Save More

Temptations are everywhere and if you find it hard to save, we won’t even judge because we feel you. That’s why a fixed deposit account is a great way to save because you are restricted from taking out the money you’ve kept. Additionally, in cases of which you withdraw money before the maturity date, not only will you not get the additional interest, you might also be charged with a penalty fee too. Yikes! Paying the penalty would mean, that in order for you to withdraw your own money – you first, have to pay for it. Which is something you can agree that it isn’t worth doing at all. Hence, you’ll need to resist the temptation of dipping into your deposit if you want to take advantage of the safe returns and grow your money!

To round it all up, a fixed deposit is one of the easiest ways of earning a side income. All you have to do is stash your money in the account and not touch it! It doesn’t get easier than that, trust us. Ultimately, the more important aspect is to build good saving habits. Always put your money at the right place and you’ll see it work wonders for you financially. With all the benefits you know now about the fixed deposit account, are you ready to open one yet?

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