| Standard Chartered Bank |
A TIME Deposit is a type of savings product where a set amount of money (the principle amount) is locked into a fixed deal of a certain tenor (period of time) for an agreed interest rate. The interest will then be paid out on the Time Deposit when the deal matures or expires. Most Time Deposits have options for roll over meaning the deal will be repeated with the interest being compounded into the principle amount and rolled over into a new deal.
The product should not be confused with Certificate of Deposits which may have different interest pay out conditions and may not compound interest.
1. Disciplined approach to savings
Time Deposits are fixed once the deal has been entered. The tenor options can range across one month, three months, six months, 12 months and even up to 18 or 24 months depending on the financial institution. Should the customer wish to break the deal or uplift the deal prematurely, the deal would have to be unwound at a cost which the customer would have to bear and interest will not be paid out. As such, customers wishing to have a more disciplined approach to savings wold find that a Time Deposit may be a good way to start.
2. Better interest rates compared to savings accounts
Time Deposits have more attractive interest rates over regular savings accounts since the deals are fixed and there is less movement of the funds in terms of transactions. The phrase ‘making your money work harder for you’ applies here in every sense and Time Deposits earn interest every second that it is placed in the deal. The interest earned on Time Deposits may also help in some way to mitigate inflation that could potentially eat away at your savings.
3. Low risk product
For customers who are fearful of high risk investment products such as mutual funds or dual currency investments, Time Deposits rank very low on the risk scale and can offer customers with a good balance of being a low risk product yet offering attractive returns on principle.
4. Foreign currency options
If you have a need for a fair amount of foreign currency in the near future or wish to take advantage of favourable forex rates, foreign currency time deposits are good options to look into. Most banks offer time deposits in NZD, AUD, USD, GBP, SGD and even CNY now.
You may be trying to build up funds for your child’s education expenses in Australia or hoping to build up savings to buy property in London or you may just want to take advantage of attractive interest rates on certain currencies. All these needs can be addressed with foreign currency time deposits or if the customer has a higher risk appetite, dual currency investment products.
5. Collateral for credit or business facilities
Companies can also reap benefits from holding time deposits. Some companies may have short term surplus cash with no immediate use of the funds and may look into placing short term time deposits which will earn more attractive returns as opposed to just letting the funds sit in a current account which would not earn any returns.
As many companies conduct trade with other countries, they may want to have a strategy to build up foreign currency reserves which they typically trade in, such as US Dollars, by placing into time deposits for future use. Time deposits can also be taken as collateral or security for credit facilities such as overdrafts or trade working capital and having this on hand would be an added advantage in terms of the amount of credit a company could take against the security which is the time deposit.
6. A long term balance in an investment portfolio
For customers holding a portfolio which is heavy on higher risk investment products, time deposits may be a good way to strike a better balance on risk exposure among products held as well as currencies invested in. A good portfolio manager would be able to advise such customers on diversification solutions after careful understanding of financial needs in order to spread risks and protect the customer’s portfolio.
7. First step to building up wealth through savings
Time Deposits are the next step up from a regular savings account. Most banks offer time deposits at a low minimum start of BND1,000. With a low minimum requirement and fairly attractive interest rates, it’s a good starting point for building up savings in the wealth creation process. It’s always ok to start small rather than not starting at all.
This article is for general information purposes only and while the information in it is believed to be reliable, it has not been independently verified by us. You are advised to exercise your own independent judgement with the contents in this article.