Fixed Deposit is referred to a savings account that offers a fixed rate of interest to a customer until the designated maturity date of the scheme. Generally, a fixed deposit cannot be withdrawn before its maturity date or you need to pay a penalty if you want to withdraw it prematurely. There are a number of fixed deposit schemes offered by various banks in Malaysia. If you want to invest your money in one of such accounts, here’s a glossary to help you out with the terminologies and nomenclatures that you will come across during the process:
CASA Bundling: When a current account or savings account is consolidated into a fixed deposit account, it is known as CASA Bundling. You need to maintain a certain percentage of your fixed deposit into a CASA account.
Effective Interest Rate: An effective interest rate is an interest rate that comprises of all other fees and charges along with a compound interest rate. As the effective interest rate also consists of other charges in addition with the interest rate, it is often more than the actual interest rate.
Full Withdrawal: When a customer withdraws all the amount invested in a fixed deposit account, it is called as full or complete withdrawal.
Future Value: It is a combined value including the compound interest, stated for a specific future date.
Interest Rate: An interest is the amount you pay to a lender to borrow money. An interest rate for a fixed deposit account is a rate that the bank pays to a customer on an annual basis for using their deposited money.
Joint Account: It is an account maintained with a bank by two or more individuals who have equal rights to deposit or withdraw the funds into/from it.
Lock-in Period: It is a designated period from the bank, usually for 3 months, when a customer cannot make any partial withdrawal from his/her fixed deposit account. The lock-in period is generated from the beginning of the fixed deposit tenure. Withdrawals made during the lock-in period will result in the depositor forfeiting any interest earned on the deposit.
Murabahah: Murabahah is a concept in Islamic banking that is based on the Shariah principle. When a customer deposits money into a bank account, the bank uses the amount to buy and sell commodities and returns the principal amount with an addition of a percentage of the profit back to the customer which is known as Murabahah.
Mark-up: It is calculated as the difference between the actual price of the commodity and its price of selling.
Maturity Date: It is a date when a fixed deposit schemes completes its tenure and the interest/profit on the deposit is credited. A customer is free to make the full withdrawal on the deposit or choose to have the deposit renewed.
Overdraft Facility: An overdraft facility is a line of credit that is offered to a customer against a fixed deposit. An overdraft facility is beneficial in the cases where a customer needs money but he/she does not want to break the fixed deposit account. In this case, the customer can utilise the overdraft facility to obtain cash without breaking the investments. The facility is similar to that of a personal loan.
Profit Rate: Through the concept of Islamic banking, a profit rate is offered to a customer instead of the interest rate over a fixed deposit. The concept used here is Shariah concept of Murabahah where paying interest or Riba is prohibited. The profit rate offered by a bank can vary from another bank as it depends on the bank’s performance.
Partial Withdrawal: When a customer withdraws a portion of the amount from his/her fixed deposit account, it is known a partial withdrawal. A partial withdrawal can result in losing out on interest earned on the deposit or earning less than the predetermined interest rate, depending on when the withdrawal was made.
PIDM: An abbreviation for Perbadanan Insurans Deposit Malaysia, PIDM is a government set up that is created to protect the Malaysian citizens from any monetary fraud or losing their money if a bank fails to pay the money under unforeseen circumstances.
S Set up Fixed Deposit: Through a step-up fixed deposit, the tenures of your fixed deposit are split over a few sections (months) with different interest rate applied to each. Here, the interest rate will get progressively higher with each step/section.
Time Deposit: It is an alternative phrase used for fixed deposit.
Term Deposit: Fixed Deposits are also called Term Deposits. The money is invested for a fixed period of time at a fixed rate of interest throughout the tenure.
Tenure: A tenure is the duration for which a customer has invested in a fixed deposit.