A Fixed Deposit account or a Time Deposit account, as it is sometimes called, is a type of account that offers a fixed and guaranteed rate of return on your investment.
Benefits of Fixed Deposits
Fixed Deposits are a great avenue to invest in if you have some surplus cash in hand. Here are some benefits that you get through investing in fixed deposits:
Higher Interest – Fixed deposits provide higher interest income than what is available with savings accounts or current accounts.
However, with effect from 01st October 2014, the Financial Services Authority (OJK) has capped the rate at 200 basis points (bps) above the Bank Indonesia (BI) benchmark rate for BUKU IV lenders (banks with core capital of more than 30 trillion rupiah) and at 225 bps above the BI rate for BUKU III lenders (banks with core capital of between 5 trillion and 30 trillion rupiah).
No limit has been set for BUKU I and II lenders as they are believed to follow the rate movement of major banks. Regular time deposits below Rp 2 billion will still carry a maximum 7.75 percent interest rate, as guaranteed by the Deposit Insurance Corporation (LPS).
Also, some banks offer tiered interest rates; as the amount of money on deposit increases, the interest rate also increases.
Guaranteed Interest – Another attractive feature of fixed deposits is that the interest income is guaranteed; interest rates may fluctuate but once you invest in a fixed deposit at a particular rate of interest, the interest rate remains unchanged till the fixed deposit attains maturity. This feature will also help you plan and manage your finances as interest rates do not change during the tenor of the deposit.
Availability of flexible tenors – Fixed deposits are available at a variety of tenors ranging from 7 days to 24 months.
Deposit Currency – In addition to being able to create fixed deposits in Rupiah, some banks also offer their customers the flexibility to open fixed deposits in various other currencies also. These can be used as an alternative form of investment, as a hedge against exchange rate fluctuations, funding your child’s overseas education etc.
Automatic Roll Over – Some banks offer fixed deposit accounts that have an automatic roll over facility. This facility enables you to automatically renew your deposit upon maturity. You can choose to have the principal and interest renewed or the principal alone renewed with the interest earnings going to your current or savings account or you can choose not to renew at all with your principal and interest being credited to your current or savings account.
Overdraft Facility – Some banks also offer you the facility to avail an overdraft against your fixed deposit(s) with them. This way you will continue to earn interest on your deposit while still having getting access to funds for meeting any exigency.
Islamic Deposits
If you are interested in banking the Syariah-compliant way, there are Islamic fixed deposits also available. These deposits work on the principle of Mudharabah. Here, the bank acts as a mudharib (manager) to invest the deposited amounts and shares the resultant profits (and risk / losses) with the investor.
Deposit Insurance
Lembaga Penjamin Simpanan or the Indonesia Deposit Insurance Corporation (IDIC) insures deposits in the form of savings accounts, time deposits, current / checking accounts, certificates of deposits and/or other forms of deposit with similar characteristics. IDIC also insures Syariah-based deposits such as Wadiah-based current accounts, Wadiah-based saving accounts, Mudharabah-based saving accounts, and Mudharabah-based term deposits. The maximum amount of deposit insured by IDIC is Rp 2 billion per depositor per bank.
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