Use your Fixed Deposit | Four Ways to Use your Fixed Deposit
Credit Cardsby Priyadarshini 22 November 2022
Your fixed deposit account can be used for more than just earning higher interest. Here are four alternatives you might not have considered.
Fixed deposits are probably Singaporeans’ most familiar financial products. Almost everyone understands the concept: put your money in a fixed deposit for several years, earn interest, and use the money to supplement your retirement fund (or pay for something like your house). In this blog, we tell you four ways to use your fixed deposit.
Four Ways to Use your Fixed Deposit
As Security for a Business Loan
It can be difficult for new businesses to obtain a loan. Most banks will only lend to well-capitalized businesses or entities that have been profitable for two to three years. One option is to use your fixed deposits as collateral. Assume you have S$70,000 in fixed deposits and need S$50,000 to fund your new business venture. You don’t want to spend the S$50,000 all at once; instead, you’d like to pay it back in monthly installments. This keeps you from losing the majority of your savings if the business fails.
Reduce Your Mortgage Interest Rate
Did you know that you can use your fixed deposits to lower your mortgage interest rate? Some banks provide an interest-only mortgage loan. This home loan has a unique feature in that it considers a portion of your loan to be “paid” by an existing fixed deposit. This reduces the amount of interest paid on the outstanding balance.
In general, interest-offset loans are only advantageous if you have a significant amount of money to put into fixed deposits. If you have less than S$100,000 to put in fixed deposits, you may be better off considering other options (speak to a qualified mortgage broker or wealth manager, to find out what’s best for your specific situation). However, interest offset can be a useful tool for those who have amassed a significant amount of wealth/savings but want to better manage their cash flow.
Safety Net – Four Ways to Use your Fixed Deposit
Fixed deposits come into play here. Fixed deposits, because they are guaranteed and insured, can be used to safely hold money until things settle down. In the meantime, you can borrow against your fixed deposit or simply leave it alone to earn interest. Don’t be surprised if your financial adviser or wealth manager suggests reallocating more to simple fixed deposits during an emergency. This is to protect your money while you wait out the storm.
Even if you have a low income, you can get a credit card
Some people may have a lot of money but a low income. A retiree with significant savings is a typical example. In these cases, some banks will issue you a credit card even if you have a low income. However, you must be cautious about making repayments, as the bank may seize your fixed deposit if you do not.