How to Invest in Fixed Deposits in Sri Lanka – What You Need to Know

How to invest in fixed deposits? What do I need to know? 

I train people on how to manage their personal finances. As a financial literacy trainer, people ask me these questions often. It isn’t possible to answer them adequately within a couple of minutes. I wrote this article on investing in fixed deposits (FDs) so everyone can benefit from it. I have also written about these topics in Sinhala as well, in DiyunuwaBlog.com.

Visit these links if you prefer reading in Sinhala:
ස්ථාවර තැන්පතුවක් දැමීමේදී සැලකිය යුතු කරුණු – ඒ සඳහා තෝරා ගන්නා ආයතනය (පළමු ලිපිය)

ස්ථාවර තැන්පතුවක් දැමීමේදී සැලකිය යුතු කරුණු – පොළී ප්‍රතිශතය සහ කාල වකවානුව (දෙවැනි ලිපිය)

Introduction

Firstly, there is no magic to investing in fixed deposits. They are just another financial instrument that guarantees a fixed interest income at the end of the maturity period. If you are talking about an investment portfolio, fixed income securities, including treasury bills, debentures and fixed deposits, each have their role to play. But for most regular people both treasury bills and debentures are beyond affordability. Fixed deposits, in contrast, can be started by anyone with just Rs. 10,000.

That may sound simple and doable. But you want to ensure that your money is safe, and will deliver a better return than having it all stashed away in your savings account or under your pillow.

What you need to know before investing in fixed deposits 

• Where will you invest? What organisation are you going to choose?
  Choose the wrong one and you can lose not just your interest, but also the entire capital. 
• How much to invest in your fixed deposit?
  That depends on your wealth of course. But it is important to know that higher values (say above Rs. 1 million) may get higher interest rate offers from banks and financial institutions. 
• What interest rates apply to FDs in Sri Lanka?
  These rates can change due to economic conditions and other factors. Typically, the longer your fixed deposit period, the higher the interest rate you receive. There may be exceptions to this rule, especially when banks have special offers going and when the financial markets and the local and global economies are in flux. 
• What period should you select for your fixed deposit?
  You can choose anything from one month to three months, six months, 12 months, 24 months, and 60 months, meaning five years. Since the recent financial crisis, banks are also offering 100 day, 200 day and 300 day special fixed deposits, usually with more attractive rates than the traditional time period deposits.
• Should you opt for getting interest monthly or at maturity?
  Usually banks offer higher rates of interest if you go for receiving interest at maturity. But some people want to live off their fixed deposit interest and may want to get it monthly. 
• Should you choose auto renewal or not, once the fixed deposit period is over?
  This too depends on your financial needs. There are pros and cons in both options. 
• Is my money safe in a FD? How is the safety guaranteed?
  Fixed deposits upto a certain value are covered by the Sri Lanka Deposit Insurance Scheme.
• What do I need to open a FD?
  Money and your national ID will do. But they are also going to ask you for a bank account to send your interest monthly or both interest and capital when the fixed deposit matures. 
• KYC – Know Your Customer info
  All banks and financial institutions will ask you for your personal information including:
  • Your monthly incomes and source of that income
  • Whether you have a tax file and if yes, the file number
  • Whether you are a politically exposed person or related to one

These questions may feel rather invasive. But all banks and financial institutions must ask these questions to comply with financial laws and Central Bank regulations on money laundering and terrorism financing.

Over the next few weeks, I will go into each of the above in detail. 

Do You Have Any Questions about FDs?

Please share your questions and concerns about investing in Fixed Deposits in Sri Lanka. I will try to answer them the best I can. I look forward to hearing from you.

Written by Nilooka Dissanayake