Plan for an easy retirement

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An emergency fund should be an essential component of every person’s financial plan. Unexpected tragedies can catch us by surprise, and an emergency fund can oftentimes be the difference between having a much-needed peace of mind and security or struggling to recover.

As the name suggests, an emergency fund is a separate account to be used only in the case of true emergencies such as medical bills or car and home repairs. While there isn’t a fixed amount to how much you should keep in your emergency fund but having between three to six months’ worth of your income is a good goal to have especially if you keep the most costly emergency, unemployment, in mind.
Good Savings Ideas To Consider As FD “Alternatives”
Whether you are in retirement or just an individual with low risk tolerance and suffering from cripplingly low interest rates on your FDs, what can you do?  Before you start considering riskier options, here are some quick and easy ideas to maximise returns. If you’re open to a little risk, there’s an option for you at the end of the list as well.

1. “Interest Hunter” – Research FD promos or consider High-Interest Savings Accounts

Wait Hann, didn’t you just say FD rates are at a record low and we should do something about it? Surely not put back into an FD or a CASA (Current Account/Savings Account)?

Well, unless you’re an “FD hunter” already, your FDs are probably stuck in low(er) interest board rates of 1.X-2%, and the time is now more than ever to turn into a FD hunter (someone who does homework and ensures they’re at leading rates all the time).

My research team keeps tabs on rates each month, and they’re updated and freely available in our Best Fixed Deposit Accounts In Malaysia piece, so you can ensure you’re at the top end of that 2.5% rather than in the 1.X% range. Why bother? Well for some who have the RM250,000 PIDM-guaranteed limit stashed away, 1% is an extra RM2,500 a year; not bad for a couple of hours of work moving things around, right?

2. The FD Log Roll – earn higher FD rates without sacrificing (too much) liquidity

OK, so you’re an FD loyalist, and are feeling a little lazy to constantly move your money around different banks every 3-6 months or so, but still want to maximise your interest?

The concept is as follows: Rather than tying up all your money into a 12-month FD or suffer low interest on a 1-month FD (reminder, this is for lazy FD loyalists only), why not split this savings into 12 equal amounts, and have concurrent 12-month FDs which mature (and automatically renew) each successive month?

3. Have a Flexi Home Loan also? Don’t be a charity to the bank

This is a simple one that some folks overlook. A flexi home loan is attached to a current account, where interest earned there is used to offset the interest charges from your home loan.

What’s more important, a current account may have a higher interest rate than a short-term FD (i.e. 1-12 months). So instead of putting your savings into an FD, you could put it into the offsetting current account to “upsize” your effective interest (and thus reduce the interest charges incurred on your home loan). What’s more, a current account also lets you withdraw funds at any time, with no lock-in period like a traditional FD.

As an example, let’s say you’ve got a RM500,000 Flexi Home Loan balance with Bank A at 3.3% p.a. The same bank’s FD rate is at 2.0% for 12-month FDs.

4. Money Market Funds – (Slightly) Higher returns than FDs, yet similar ‘government’ risk

Investopedia definition: A money market fund is a type of mutual fund that invests in high-quality, short-term debt instruments, cash, and cash equivalents. These funds are generally seen as extremely low-risk, but some individuals have the assumption that since they are not guaranteed by Perbadanan Insurans Deposit Malaysia (PIDM) like FDs, our money is “not safe”.

Fun fact: one of a bank’s main investments is on government-issued bonds (as well as securities issued by private corporations). These investments are generated from fixed deposits (ever wonder why most FD promos require “fresh funds”?), and the difference between the returns from those securities and the FD interest paid back to customers is the bank’s profit.

5. Bonds/Bond Funds – Some capital market risk, but higher returns

In general, you can expect bond fund returns to be in the range of 4-6% based on current Malaysian Government Bond yields. Again, you’ll need to check what each bond fund’s allocation covers– they may also include a mix of short- and medium-term bonds issued by both the government and private corporations. Different fund managers will allocate different ratios to fit in to the fund’s risk exposure and, of course, maximise returns.

But remember! This option carries the risk of capital loss. So go in with two eyes open on this one, and don’t put your hard-earned savings into something you’re not familiar with.
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