Are Fixed Deposits Worth It?

They offer a safe haven for your funds, especially in uncertain economic times. However, it’s important to understand FDs’ pros and cons, global economic trends like US Fed rate changes, and your financial situation to determine if these term deposits are the right choice for your financial goals.

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Fixed deposits offer several advantages for Singaporean savers:

1. Guaranteed returns

FDs provide a fixed interest rate for the duration of the deposit, ensuring predictable returns. This stability is particularly appealing in volatile markets, allowing you to know exactly how much you'll earn.

2. Low-risk investment

As a low-risk investment, FDs are ideal for those seeking to preserve capital. Your principal is protected, and the returns are guaranteed, making it a safe haven for your savings.

3. Disciplined savings

By locking your funds for a set period, FDs encourage disciplined savings. This helps you avoid impulsive spending and stay committed to your financial goals.

4. Variety of terms

FDs offer a range of terms, allowing you to align your investment with specific financial goals. Whether you're saving for a short-term purchase or a long-term objective, you’ll likely find an FD term that suits your needs.

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While fixed deposits offer stability, they also come with certain drawbacks:

1. Lack of liquidity

One of the main cons of fixed deposit is that your funds are locked in for the chosen term. Early withdrawal usually incurs penalties, limiting your access to cash in case of emergencies.

2. Inflation risk

Although FDs offer guaranteed returns, the interest earned may not keep pace with inflation. This can erode the real value of your savings over time, especially in periods of high inflation.

3. Missed opportunities for higher returns

Compared to riskier investments like stocks or mutual funds, FDs offer relatively lower returns. If interest rates rise, you're locked into the initial rate, missing out on potentially higher yields.

4. Penalties for early withdrawal

Breaking a fixed term deposit before maturity often results in penalties, which can include forfeiting a portion of the earned interest. This can significantly reduce your returns if you need to access your funds prematurely.

>> Read more: Best alternatives to fixed deposit accounts in Singapore

Fixed deposits offer a blend of security and predictable returns in several scenarios. Let’s explore three key situations where fixed term deposits can be your best financial ally.

FDs are ideal for Singaporeans saving for short-term goals like home renovations, weddings, or property down payments. They protect your savings from market fluctuations while earning a steady return.

Compared to Singapore Savings Bonds (SSBs) or high-interest savings accounts, FDs offer a fixed rate, ensuring your savings grow predictably, perfect for planned expenses.

>> Read more: Best savings accounts in Singapore to park your money (2025)

FDs are suitable for individuals who want to avoid the temptation of spending excess cash. They function as a disciplined savings tool by locking money in for a fixed period.

However, remember to consider your liquidity needs and keep an emergency fund separate in a more accessible savings account, ensuring you're prepared for unexpected expenses.

FDs are ideal for conservative investors who prioritise capital preservation over high returns. Compared to bonds, T-bills, or high-yield savings accounts, FDs offer a guaranteed return with minimal risk.

Choose the right FD tenure to maximise returns without unnecessary risk exposure, aligning with your overall financial strategy and risk tolerance. This can help you choose the best investment strategy for your current goals and situation.

Balancing the need for liquidity with the desire for higher returns can be tricky. Here are a couple of strategies to help you get the best of both worlds with your fixed deposits.

FD laddering involves staggering multiple FDs with different maturity dates to maintain liquidity while enjoying higher interest rates.

For example, you could invest in 6-month, 1-year, and 18-month FDs. As each matures, reinvest it into a new long-term FD. This strategy makes sense when you want regular access to funds but also want to capitalise on the higher interest rates offered by longer tenures, compared to investing solely in SSBs or T-bills.

Some banks in Singapore offer flexible FDs that allow withdrawals without penalties, providing more liquidity than traditional FDs. While traditional FDs lock your funds until maturity, no-penalty FDs offer the flexibility to access your money when needed, albeit often with slightly lower interest rates.

Step-up FDs offer increasing interest rates over time, rewarding you for longer-term commitments. Compared to traditional FDs with fixed rates, step-up FDs are beneficial when you anticipate rising interest rates, ensuring you earn more as time progresses.

They're ideal for those who want to commit long-term but also want to benefit from potential rate increases.