Fixed Deposit

[KelvC]

I noticed the Money matter's sub forum was mainly used to discuss MLM topics. I find this new topic would be relevant to many average Joe out here.

I am looking for a fixed deposit (bank) which allows the flexibility for the depositor to add additional funds into the fixed deposit without waiting for the FD to mature or to close the FD account to top up cash. I would like to take advantage of the compounding interest (was told this is available in Australia). I have been around few of the local banks and was informed the following:

1. X bank said i have to wait for FD term to mature, tabulate the interest and close the FD account to combine the funds.

2. Y bank said i could open another FD account

3. Z bank said the second fund could exist in paralel with the primary funds but not compounded together.

What i am looking for is flexibility of adding cash into the FD for compound interest, any ideas?

[totoro]

FD are contracts to pay certain interest to you if you put your money in for a fixed period of time. To allow top-up of FD midway is to circumvent this time factor, and open a loophole. So I doubt it'll work.

[IanQ]

Hi KelvC,

Why would you want to top-up additional funds into your existing FD, unless you just want to have the same interest rate and maturity date applies to your additional fund? Why not just create another FD, unless the fund you wished to add is smaller than the minimum amount required to create a FD contract?

Btw, there are no free lunches here (well, unless one of the banks in Malaysia is stupid enough to create one where it loses money :) ). Your additional fund will not be able to earn interest with the starting date backdated, and your interest rate will still be based on prevailing rate, not your old FD rate.

As for compounding rate method calculation, it depends on whether banks will offer them. Nonetheless, currently, due to ABM’s (Association of Banks Malaysia) guideline, the interest rates (say 4%) which you see quoted by banks is the Simple Rate (can’t recall if they follow calendar month or calendar day or 365, etc). For example, the 4% rate FD of tenor 6 months will earn you 2% of your principal when the FD matures.
(that’s why at overseas, people look at the APY, which is the annual percentage yield)

[sikkigoh]

If you are looking for flexibility FD is not the right vehicle. Why are u looking for a flexible FD?

[KelvC]

I'm planning to find a vehicle to consolidate my funds for easy management. I agree that the start and end date of the FD maturity for the top-up funds would be tricky however this would be possible if the top-up funds uses the current interest rates (month to month) instead of the contractual primary FD interest rates, say 1 year @ 4%.

I do not like the fact that i have to wait for term to end (say 1 year) just to add additional cash, have our savings sitting on saving or current account is a waste.