Is Fixed Deposit Worth It? The Risks No One Talks About

September 13, 2022

Fixed deposits (FDs) are a go-to savings option for many Singaporeans — offering stability, predictable returns, and minimal risk. Unsurprisingly, when banks roll out high FD promotions, long queues quickly form outside local branches. But in a rising interest rate environment, is fixed deposit worth it, or are there better alternatives?

While FDs seem like a safe, guaranteed way to grow your money, they come with risks that many investors overlook. What happens if interest rates increase after you’ve locked in your money? Will you miss out on better returns elsewhere?

Before committing your funds, let’s explore the fixed deposit risks no one talks about, and why a more flexible option might be a smarter choice.

How do fixed deposits work?

An FD is a savings account that lets you earn a guaranteed interest rate by locking in a lump sum for a set period. The longer your money stays in, the more interest it accrues.

But how exactly does a fixed deposit work? Here’s a simple breakdown:

Deposit the money – You place a lump sum into an FD account with a bank.
Money earns interest – Interest is applied at either a fixed rate (simple interest) or a compounding rate (compound interest).
Withdraw at maturity – Once the FD term ends, you receive your principal + interest earned. If you withdraw early, penalties may apply.

Fixed deposit risks you shouldn’t ignore before investing

Fixed deposits are often considered safe and predictable investments, but they come with risks that many investors overlook. Before committing your money, here are the key risks of fixed deposits you should know.

1. Risk of locking in low rates

Fixed deposit interest rates are not fixed forever — they fluctuate based on economic conditions, central bank policies, and market demand. Locking in an FD today means committing to that rate for the entire tenure, regardless of future changes.

Imagine you lock in a 12-month fixed deposit at 2.5% p.a., thinking it’s a good deal. But banks increased their FD rates to 3.0% or even 3.5% p.a three months later. However, because your money is already tied up, you miss the opportunity to earn a higher return.

The way out: To take advantage of the new rates, you’d have to break your existing FD, which often comes with penalties or loss of interest.

2. The cost of early withdrawals

A common misconception is that fixed deposits offer flexible access to funds. However, most banks do not allow partial withdrawals, and breaking an FD early usually comes with significant financial penalties.

How early withdrawal penalties work:

Some banks charge an early withdrawal fee.
Others forfeit all accrued interest, meaning you might only get back your initial deposit.
In some cases, if interest has already been credited to your account, the bank may claw back the amount upon withdrawal.

Example scenario:

You invest S$50,000 in a 12-month fixed deposit at 2.5% p.a. After 6 months, you need the money for an emergency.

If you withdraw early, the bank may reduce your interest rate to 0.5% or even zero, significantly lowering your earnings. Some banks may also charge a penalty fee, further reducing your final payout.

The takeaway here is that fixed deposits lack liquidity, so always ensure you won’t need the funds before committing to an FD.

Inflation risk

One of the biggest concerns with fixed deposits is that they may not keep up with inflation. Inflation erodes the purchasing power of your money, meaning that even though you’re earning interest, your actual returns could be negative.

Suppose you have S$10,000 in a fixed deposit at 3% p.a. However, inflation is at 4% per year.

Even though your FD earns S$300 in interest, the rising cost of goods and services reduces the actual value of your money.

Opportunity cost – Are you missing out on better returns?

Fixed deposits offer lower long-term returns than to other investments like bonds, REITs, or stocks. So, if interest rates rise or a better investment comes along, you can’t switch without penalties.

Let’s say you deposit S$20,000 in a fixed deposit at 2.5% p.a. for 12 months; a new investment opportunity arises that offers 6% p.a., your money is stuck in the FD, missing out on better returns.

What to consider instead:

If you want stability and better liquidity, explore Syfe Cash+ Flexi (SGD) that offers competitive returns without locking up your funds.

Is a fixed deposit worth it in 2025?

With fluctuating fixed deposit rates, many Singaporeans wonder: “Should I put my money in fixed deposit accounts this year?” While FDs provide stability and guaranteed returns, their attractiveness depends on interest rate trends and economic forecasts.

Why Syfe Cash+ Flexi (SGD)

With interest rates fluctuating and inflation eroding the value of stagnant cash, finding the right place to park your money is more important than ever. While fixed deposits offer stability, they come with restrictions that may not work in your favour — from lock-in periods to early withdrawal penalties.

Instead of tying up your savings, why not choose an option that lets you stay flexible while earning competitive returns?

Fixed deposits vs. Syfe Cash+ Flexi (SGD): A side-by-side comparison

Feature	Fixed Deposits	Syfe Cash+ Flexi
Returns	2.7% – 2.9% p.a. (varies by bank)	3.1% p.a. (Projected net yield )
Interest structure	Locked in for the entire tenure	Adjusts dynamically with rising interest rates
Withdrawal flexibility	Early withdrawal may result in penalties and forfeited interest	Withdraw anytime, no penalties
Minimum deposit	Typically S$10,000 or more	No minimum deposit required
Liquidity	Low—funds are tied up for months or years	High—instant access with same-day withdrawals up to S$10,000
Risks	Inflation risk (returns may not keep up with rising costs)	Low-risk, diversified portfolio that aligns with market conditions

Making the right choice for your financial goals

If you’re looking for:

Higher potential returns that adjust with interest rate movements
Full flexibility to withdraw your cash anytime
No penalties for accessing your funds
A simple, low-risk way to maximise idle cash

Then Syfe Cash+ Flexi (SGD) offers a superior solution. Instead of locking up your funds in a fixed deposit that may become less competitive over time, keep your options open with a cash management account designed to work in your favour.

Creating a Syfe Cash+ account is simple and fuss-free. All it takes is 3 minutes with Singpass and you can start with any amount you prefer.

Make the smarter choice—start growing your savings with Syfe Cash+ today.

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