Saving in Fixed Deposit

Saving in Fixed Deposit Works Too, So Why Should I Invest?

Written by AFFIN HWANG TEAM

Published 17/01/2025

There is nothing wrong with saving in a Fixed Deposit (FD). In fact, FD is a safe and common way to preserve wealth, offering stability and predictable returns. However, relying solely on FDs may limit your financial growth. Over time, inflation can erode the value of your savings, and without other form of investment, you may miss out on opportunities to increase your wealth and achieve your financial goals faster.

While FDs may provide security and stability, other forms of investment offer opportunities to protect and grow your wealth with potentially higher returns compared to FDs.

What is inflation?

Inflation occurs when prices of goods and services rise over time, so the same amount of money today buys lesser than it did before. For example, if a loaf of bread costs RM2 today, it might cost RM2.20 next year. Inflation is a normal part of the economy and cannot be avoided. That is why investment is important—it helps to maintain your purchasing power.

The Purpose of Investing

Wealth Protection
1. Hedge Against Inflation
2. Diversifying Risk
Wealth Growth
1. Capitalise on a Growing Economy
2. Additional Income Stream
Bonus
1. No Capital Gains Tax In Malaysia

Wealth Protection

Hedge Against Inflation

Investing helps maintain the purchasing power of your money by outpacing inflation. One key reason to invest is to keep up with inflation. By investing, you can potentially grow your wealth at a rate that outpaces inflation. Instead of your money losing its value over time, investing allows it to grow, ensuring you can afford the same—or more—tomorrow as you do today.

Let’s look at how the prices of common items have increased in the last decade:

Item	2014	2024	Increment
Gardenia Chocolate Cream Roll	RM0.80	RM1.20	+50%
Maggi Curry instant noodle	RM3.60	RM4.69	+31%
1 Carton of Eggs (10-12 eggs)	RM4.29	RM7.00	+63%

What happens if you choose to do nothing with your money?

Between 2021 and 2023, Malaysia's inflation rates ranged between 2.5% and 3.0%[1] per year. Based on historical data, Malaysia FD rate is around 3% per year[2], which provides stable but modest growth. In contrast, while investing in the stock market comes with higher risks, it also provides opportunities for potentially greater returns, especially over the long term.

Let’s consider an example. Say you had RM10,000[3] in 2021, and you decided to:

ADo nothing about it (which would have been impacted by inflation);
BPut it into a fixed deposit; or
CInvest in company stocks and receive dividends.

By the end of 2023, the value of your RM10,000 would have varied based on the option you chose.

Year	A Do Nothing [4]	B Put In FD	C Invest in Company Stocks
Year	A Do Nothing [4]	B Put In FD	Petronas Gas	Sime Darby	Tenaga Nasional
	Inflation Rate	FD Rate	Dividend Yield [5]
2021	2.50%	3.00%	4.00%	4.31%	4.28%
2022	3.30%	3.00%	4.21%	5.00%	3.95%
2023	2.50%	3.00%	4.14%	5.53%	4.38%
	Initial Investment = RM 10,000
2021	RM9,750	RM10,300	RM10,400	RM10,431	RM10,428
2022	RM9,428	RM10,609	RM10,838	RM10,953	RM10,840
2023	RM9,193	RM10,927	RM11,287	RM11,558	RM11,315
Gain/Loss	- RM 807	+ RM 927	+ RM 1,287	+ RM 1,558	+ RM 1,315

As shown, by the end of 2023,

AThe value of your RM10,000 would depreciate to RM9,193
BAn FD would earn you an additional RM927
CInvesting in the right company stocks could yield up to RM1,558, the return is RM631 (6.31%) more than putting money in FD!

While it is wise to keep some savings in a Fixed Deposit for emergencies, allocating a portion of your funds to investments could potentially enhance your wealth over time.

Footnotes:

Headline inflation rates were obtained from the Bank Negara Malaysia (BNM) Annual Reports for , and .
Fixed deposit rates were obtained from .
The returns for each scenario are calculated assuming RM10,000 was invested at the start of 2021.
The "Do Nothing" column reflects the impact of inflation on purchasing power.
Tactical dividend yield data was sourced from the website, and it is assumed that the share price remains the same throughout the period.

Diversifying Risk

Spreading investments across different asset classes helps to reduce overall risk. When you save all your money in one place, such as an FD or a regular savings account, your wealth is entirely dependent on the interest rates from that one source.

Interest rates on FDs are typically fixed for a certain investment period, meaning they do not grow over time and may not keep up with inflation or unforeseen life events, such as job loss or medical emergencies. Without investing, your wealth portfolio is vulnerable to these risks because you have lesser income streams or growth potential.

By diversifying your investments across different assets classes such as stocks, Exchange-Traded Funds (ETFs), Real Estate Investment Trusts (REITs), you're spreading your risks. It is also good to diversify your investment in different sectors. When one sector (e.g., property) is not performing according to plan, another sector (e.g., technology or banking) can help to balance out your entire portfolio return.

Wealth Growth

Capitalise on a Growing Economy

Investing in the stock market gives you an opportunity to grow your wealth by participating in the economy’s long-term progress. As companies grow and innovate, their stock prices may increase over time, which can increase the value of your investments. However, it is important to remember that both stock prices and investment returns are not guaranteed, and they can go up and/or down based on market conditions.

Market downturns, while challenging, can also present opportunities to build wealth for investors who adopt a disciplined and informed approach. For example, when stock prices fall, quality stocks may become available at attractive prices, offering potential for gains when the market recovers. While there’s no certainty that markets will bounce back quickly, staying invested and taking advantage of these opportunities can help grow your portfolio over time. FDs, on the other hand, offer stability but do not necessarily give you the same potential to benefit from market growth.

Let’s take a look at the comparison of the stock price of these companies during COVID-19 and now.

Company	March 2020	November 2024	Increment
Affin Bank Berhad	RM1.30	RM2.90	+123.0%
Malayan Banking Berhad	RM7.08	RM10.30	+45.5%
Tenaga Nasional Berhad	RM10.88	RM14.30	+31.40%

Data retrieved from , accurate as of 15 November 2024

If you had invested RM10,000 in each of these companies in March 2020, after 4 years, your portfolio would have grown up to RM22,300!

Company	Initial Investment	Increment	Current Value
Affin Bank Berhad	RM10,000	+123.0%	RM22,300
Malayan Banking Berhad	RM10,000	+45.5%	RM14,550
Tenaga Nasional Berhad	RM10,000	+31.4%	RM13,140

Additional Income Stream

Generating extra income through dividends, interest and other investment returns. Many investments, such as dividend-paying stocks or REITs, provide regular income in the form of dividend payouts. This income can be reinvested to grow your portfolio or used as a steady stream of additional money.

Here are some examples of the popular dividend stocks in Malaysia and how much dividend you can potentially receive every year:

Company	Sector	Dividend Yield*	Yearly Gain For RM5,000 Invested
RHB Bank Berhad	Financials	6.49%	RM 324
Malayan Banking Berhad	Financials	5.74%	RM 287
CIMB Group Holding Berhad	Financials	4.84%	RM 242
Petronas Gas Berhad	Utilities	4.02%	RM 201

* The dividend yield data were retrieved from Google search result on 3 October 2024.

Bonus: No Capital Gains Tax in Malaysia

In Malaysia, currently, there is no capital gains tax on profits earned from selling stocks. This means you keep more of the returns from your investments in stock market compared to other countries where such profits are taxed, making investing in Malaysian stock market an even more attractive option for growing your wealth.

This advertisement has not been reviewed by the Securities Commission Malaysia.

I'm looking for