Fixed deposit has been seen as a lower return saving vehicles. But, it is low in risk and high in liquidity as well. In current situation where interest rates are expected to go up, people may start to question how long they should place their money in the FD account.
Based on my personal calculation, it’s better to place your FD in a shorter tenure so that you can take advantage of the expected interest rate rise in future. I still remember in the mid of May, Bank Negara Malaysia revised its Overnight Policy Rate (OPR) by 25bps to 2.5%. You can try to put your fixed deposit in a shorter tenure such as 1 month, 2 months or 3 months. This is because if you put in a longer tenure now and you can gain an extra 25bp from it, but you won’t profit from it if the rate rise by another 50bp in a couple of months perhaps.
The recent OPR revision has seen most banks revising their 1 month FD rate by 25bps to 2.75% (which is up from 2.50%). In contrast, the 12 months FD interest rates have only been increased by 5bps to 2.85% (which is up from 2.80%). So, it is not necessary to said that put longer term FD tenure will gain better return later.
We always must remember when we place an FD with any bank, the interest rate is contracted for the whole tenure of fixed deposit. So, any FD interest rate increase during this period, as a result of an OPR interest rate hike, then it will not have any impact on your current FD since it has been placed on the basis of agreed rate at the time of placement.