Sunday, May 14, 2006

Fixed deposit and savings account

I always ask myself, should I use fixed deposit or savings account? Like this month, I have about $2000 sitting in my savings account which gives 7.35% interest. If I put the money into a fixed deposit account for one full month, I can earn 7.4%. And I can earn 7.45% if I put the money for 3 months. So, finally I’ve decided to invest $1700 into the fixed deposit. These are some reasons of why I did this.

1. I don’t have any plan to spend that money in one month time. Since semester break is about a month ahead, I think it is better for me to earn money by doing nothing.

2. I don’t want to accidentally overspend my money since I need it for my semester break. I already have a plan for my break; a road trip across the North Island of New Zealand. So, it will prevent me from reaching my money before the time comes.

3. The interest rate is higher. That means more return to my investment. At the end of this month, I should get $10.48 of interest instead of $10.41 if I just save my money in the savings account. It is just a small difference, but for me every cents counts.

4. I’m not choosing 3-month fixed deposit as I don’t have enough back up money. It is important to have some back up money, just for the sake of emergency. Last year, I have experienced this. My grandmother suddenly fell sick and I have to go back to Malaysia as soon as possible. So, I have to buy the airplane ticket although it was the peak time for traveling.

I hope I can continue to save my money using the fixed deposit in the future. Maybe I will go for 3 months after this. For those of you who are planning to use fixed deposit, this are some tips for you:-

1. If you are planning to spend your money soon, don’t use fixed deposit. Savings account is better for you.

2. Make sure you have some money sitting in your saving account. Don’t put all your money into fixed deposit. It’s dangerous!

3. Choose the period that suits you. Don’t be fooled by high interest because higher interest usually applied to longer period of deposit.

4. Find a bank that offer the highest interest for fixed deposit (If possible). But, make sure that you know that bank’s background and history.

Good luck!

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