Why Bank Deposits (including Fixed Deposits) aren’t always the best option for businesses?
While bank deposits and Fixed Deposits in Singapore are considered safe, no financial product is entirely risk-free.
Here’s what you need to consider before making deposits your primary investment vehicle:
- Low Returns: Fixed deposits often offer lower interest rates compared to other investment options. In times of inflation, the real value of your money can decrease, meaning your purchasing power goes down over time.
- Liquidity Issues: Fixed deposits lock your funds for a set period. If your business needs quick access to cash, withdrawing early can incur penalties, reducing your earnings.
- Opportunity Cost: By keeping your funds in low-interest bank and fixed deposit accounts, you’re missing out on opportunities to compound your interest, which could significantly impact your business’s growth.
- Insolvency Risk: While this is rare in Singapore, banks can fail. The Singapore Deposit Insurance Scheme (SDIC) only insures up to SGD $100,000 per depositor, per bank, leaving any excess funds unprotected in the event of bank failure. This means your funds may be locked in the bank for years until the bankruptcy process is complete.