• Fixed Deposit Glossary

    You will come across many banking terms when you start researching about fixed deposits. For those who are new to the banking sector or to the fixed deposit segment, it may be tough to comprehend all the jargon's. Here is a glossary of terms related to fixed deposits for you to understand and invest in such accounts.

    Automatic Renewal—If you do not withdraw the deposit amount upon maturity and do not respond to the bank’s notification about your account’s maturity, the FD account will be automatically renewed for the same tenure as you had initially placed. The FD board rate at the time of renewal will be applicable for the new cycle.

    Collateral—Some fixed deposit accounts let you pledge the FD certificate as a security for taking a loan from the bank. That means you are using the FD certificate as collateral for borrowing money. In the case you do not repay the borrowed money in the stipulated period of time, the collateral can be forfeited.

    Commodity Murabahah—This is a Shariah-compliant principle adopted by Islamic banks to offer term/time deposit-i accounts. According to the principle, an asset identified by the bank will be used as an underlying asset for sale and purchase transactions between you and the bank.

    Commodity Price—Commodity price is the amount you place in an FD account when you open the account.

    Conventional Fixed Deposit—Fixed deposit accounts that follow the conventional banking system and its principles are known as conventional fixed deposits.

    Deposit Insurance System—Deposit Insurance System (DIS) is a government system developed to protect depositors against the loss of insured deposits placed with member banks/financial institutions.

    Depositor—A person who opens a fixed deposit account with a bank and places a certain sum in the account is known as a depositor.

    FD Certificate—A letter issued by the bank stating the amount deposited, interest rate, tenure, the date on which account was opened, and the maturity date. It also includes a unique account number for identification purposes.

    Foreign Currency Fixed Deposit Account—A fixed deposit account that receives the deposit sum, credits interest, and matures in a specified foreign currency is known as a foreign currency fixed deposit account.

    Islamic Fixed Deposit—Fixed deposit accounts that follow the Islamic banking principles, i.e. the Shariah Law are known as Islamic fixed deposits.

    Ibra’—Ibra’ is an Islamic banking term for a rebate. Ibra’ is collected when you withdraw your deposit amount before the maturity date. The profit you were supposed to earn will be collected in the form of Ibra’. It is calculated based on the formula,

    Rebate/Ibra' = Murabahah Sale Price - [(P x R x T/365 or 366 x 50%) + P]

    Where, Murabahah Sale Price is the sum of the principal amount and the profit.

    Maturity Date—The date on which the deposit tenure ends is known as the maturity date.

    Partial Withdrawal—If you withdraw a share of the amount deposited in your fixed deposit account before maturity, it is called partial withdrawal. Usually, partial withdrawals are not allowed. If it is allowed, only the amount remaining in your fixed deposit account will earn the interest/profit.

    PIDM—Perbadanan Insurans Deposit Malaysia (PIDM) is a government institution that protects your money in the bank in the case where a member bank fails to return your deposit.

    Premature Withdrawal—It means withdrawing the deposit amount before the completion of the set tenure or before the maturity date. You need to know that you may not receive the interest/profit in full if you make a premature withdrawal.

    Profit—Profit is the additional sum you earn over the amount you have deposited in an FD account. It is calculated using the formula,

    Principal Amount x Rate x [No. of Days / (365/366)]

    Rollover—If you wish to continue with the fixed deposit account for another cycle instead of withdrawing the sum upon maturity, the continuation of the account is called a rollover.

    Selling Price of the Commodity—The amount you deposit in the account together with the profit you earn at the end of the tenure is known as the selling price of the commodity in terms of a fixed deposit. This is also known as “Murabahah Sale Price”.

    Term Deposit/Time Deposit—It’s similar to fixed deposit where the depositor puts the money to work for a fixed period of time in a term deposit account. In return, the bank pays interest to the depositor.

    Uplift—Withdrawing money from your FD account partially or wholly is known as uplifting funds.

    Wakalah—Wakalah is a Shariah-compliant principle on which FD accounts of some banks work. Here, you appoint a bank to perform certain buy and sell transactions using your deposit. Further, the bank adopts the concept of Murabahah to work as your agent.

    There are a lot more terms related to the banking system, including FD that you must know. We will try to add as many terms as possible to make it easier for you to understand the concept.

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