20 October 2011

A Better Way to Manage Your Fixed Deposit Account – Having enough FDs which mature in different consecutive months

Besides allocating main fund in investment portfolio, tools such as fixed deposit account provides a relative secure and liquidity for investors to ensure they have sufficient cash to invest more in the future when opportunity comes or rebalance their portfolio when economy crisis occurs. As we know, opportunity is for people who have enough preparation. This preparation is in terms of capital and knowledge. So, in this post, I would like to share the way I use to manage my high liquidity account, that is, Fixed Deposit Account.

1. Liquidity Vs Return
The first thing I concern about is how to optimize the liquidity of my Fixed Deposit account. Generally, the interest rates of one month and one year fixed deposit accounts are slightly different, that is, less than 0.5%. Therefore, personally, I prefer to “sacrifice” the extra “0.5%” to optimize both liquidity and return of my fixed deposit. In other words, I use the 0.5% interest to buy an “insurance” in such a way that my fixed deposit account will earn interest even though I need to cash out it suddenly within one year. Moreover, this approach makes me more comfortable to cash out my fixed deposit anytime for better investment in the future.

2. Optimize the Return – Six months Living Cost Saving
Next, in order to save six months living cost, it would be a good idea to save them in different fixed deposit accounts in different month for a term of six months. For example, the first month you save a fixed deposit for a term of six months, and then repeat this procedure until the sixth month. After that, one of your six fixed deposit accounts will mature each month. When you complete this six months plan, you can simply focus on your career and investment development with less worry about the liquidity of your asset.

Of course, you can adjust the period of term and the amount of your fixed deposit to suit your needs. But, please make sure you have more than three fixed deposit accounts (my case is six FD account) and each of them will mature in different months, consecutively.

In short, although fixed deposit is not a high return tool, it is a place for us to “store” some fund as a preparation for both challenge and opportunity in the future. Therefore, we do need this kind of tools to enrich our portfolio. That's all for today. More fascinating articles and sharing will be updated from time to time in Xaivier Blog. So, you are welcome to subscribe our feed, look at our sitemap or simply visit our Homepage.

Written by: Xaivier Chia


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