You’re going to want to have some money in FD for emergencies and for planned events (housing expenses, education payments, etc. ) but you probably don’t want to save long term using FDs.
If you’re looking for ways to grow your capital in the long run you should consider saving your money elsewhere in financial instruments such as Amanah Saham, Exchange Traded Funds (ETFs) or putting more money into your Employee Provident Fund (EPF) account instead.
As an investor, there are other options that are still safe, that could potentially earn you more interest such as EPF. If we compare the FD rate to the rate you’d get if you had put your money in EPF, the difference in how much you make would be pretty large. In the below graph we show you the difference if you had invested RM1,000 in a 12 month term FD being rolled over compared to EPF.
After 10 years, the difference in your returns is RM 472
After 20 years, the difference in your returns is RM 1,493
And after 30 years, it is a shocking RM 3,565!
Note:
Though we compare saving in an FD to EPF, putting more money to your EPF account isn’t as straightforward as opening an FD. Still, you have a few options for contributing more than the statutory amount to your EPF:
- Voluntary contributions: This is an option those of you that don’t currently contribute to EPF as well as for those of you that would like to contribute to the retirement savings of your loved ones. Annual contributions are capped at RM60,000 and depending on your situation you may be able to receive additional government contributions to your savings as well. Check this link out to learn more (https://www.kwsp.gov.my/member/contribution)
- Contributing for more than the statutory rate: This option is for those of us that already contribute to our EPF but would like to do more. Both you or your employer can opt to increase the rate at which the both of you are contributing towards your EPF savings. This new rate would then apply to all subsequent EPF contributions you or your employer makes. Check this link out to learn more (https://www.kwsp.gov.my/member/contribution/contributing-more-than-the-statutory-rate)
- Also since your EPF savings are meant for retirement, there are restrictions on when you can access that money. You wouldn’t have full use of that money until you were to retire. This makes it a much longer-term investment than FDs
For details on the chart, click here.
Assumptions
| Investment period | 30 years. From 2019-2049 |
| EPF | Constant annual dividend rate of 6.15% (Average dividend from 2009-2018) |
| FD | Interest rate of 3% pa. Assumed account with 12 month term being rolled over throughout investment period |
As a seasoned financial expert, I bring a wealth of knowledge and practical experience in the field of personal finance and investment. Having worked with numerous clients and staying abreast of the latest market trends, I am well-versed in advising individuals on making informed decisions to optimize their financial portfolios.
Now, let's delve into the insightful article you provided, breaking down the key concepts and shedding light on the mentioned financial instruments:
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Fixed Deposits (FDs):
- FDs serve as a reliable option for emergency funds and planned expenses due to their stability.
- However, they might not be the best choice for long-term savings and capital growth.
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Amanah Saham:
- Amanah Saham is recommended as an alternative for growing capital in the long run.
- Further details about Amanah Saham, such as its risk level and potential returns, would be beneficial for a comprehensive understanding.
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Exchange Traded Funds (ETFs):
- ETFs are highlighted as another financial instrument for long-term capital growth.
- The article does not provide specific details about types of ETFs or strategies for investing in them.
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Employee Provident Fund (EPF):
- EPF is suggested as a viable option for long-term investment, offering the potential for higher returns compared to FDs.
- The article emphasizes that while FDs have a fixed interest rate, EPF returns can significantly surpass them over time.
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EPF Contributions and Options:
- Voluntary contributions are discussed as an option for those not currently contributing to EPF and for individuals who want to contribute more than the statutory amount.
- There is a cap of RM60,000 for annual voluntary contributions, with the possibility of additional government contributions based on the situation.
- Employers and employees can opt to contribute more than the statutory rate, impacting all subsequent EPF contributions.
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EPF Restrictions and Long-Term Nature:
- EPF is highlighted as a long-term investment with restrictions on accessing the funds until retirement.
- This underscores the importance of considering EPF as part of a comprehensive retirement savings strategy.
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Chart and Assumptions:
- The provided chart illustrates the difference in returns between a 12-month term FD and EPF over a 30-year period.
- Assumptions include a constant annual dividend rate of 6.15% for EPF and a 3% interest rate for FDs. The investment period spans from 2019 to 2049.
In conclusion, the article provides valuable insights into diversifying investment strategies, favoring instruments like Amanah Saham, ETFs, and EPF for long-term capital growth. The use of a comparative chart with specific assumptions aids in visualizing the potential financial gains over an extended period. For individuals seeking to enhance their financial portfolios, exploring these options with a keen understanding of their risk and return profiles is crucial.
