Investments In Ghana- Part 2ß
B. FIXED DEPOSITS (FDs)
Also referred to as term deposits are quite straightforward as they employ the simple interest formula for calculating interest. What is important is a principal(amount you want to invest), a given interest rate, a defined period. Eg. you may walk to bank XYZ to buy a fixed deposit 1000ghs (principal) @ 14% for a year.
For fixed deposits, at the end of the period, you get the 140ghs as interest using the formula [(Principal x Time x Rate)/365]. Thus you’re given 1,140 on maturity ie. Principal plus interest. The actual day counts for fixed deposits are calendar year specific.
You may have noticed the difference between fixed deposits and Tbills. For tbills, you pay less and get the 1000 face value on maturity but Fixed deposits you pay the 1000 as principal and get 1000 plus the interest 140 on maturity i.e 1140 ghs.
Generally, the longer the term of deposit, the higher the rate of interest but a bank may offer lower rate of interest for a longer period if it expects general interest rates to dip in the future.
Although institutions can reserve the right to repay FDs before the expiry of the deposit, however they generally don’t but rather hit you with a punitive charge for the termination. This is known as a premature withdrawal/liquidation. In such cases, interest is paid at the rate applicable at the time of withdrawal. Please read the terms and conditions of each bank’s FD placement.
It is also crucial that you know where you’re putting your money. I’d highly recommend buying an FD from a commercial bank rather than any other financial institutions. Also be mindful of extremely high interest rates if compared to treasury bill rates. If say a 6 month treasury bill rates are circa 15% and you’re being offered say 24-25%, it should be a red flag for you.
WHO SHOULD INVEST IN FIXED DEPOSITS
> Risk tolerant individuals as financial institutions are usually much riskier than the government. Some banks are also more riskier than others. > Investors who want capital appreciation > People who do not have immediate need of the funds within the investment period as charges do apply on early termination. > Consider it for a diversified portfolio.