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| 3.1 |
Savings and Investments |
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Definition |
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Savings refer to excess money deposited in the safe box, money box or drawer.
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| Savings account: |
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- The savings account holder can save any amount according to his ability.
- The account holder receives the interest based on the total amount and duration of savings.
- Interest rates are lower compared to fixed deposit accounts.
- The account holder can withdraw the savings at any time.
- The savings can be withdrawn by using a debit card via an automatic teller machine (ATM).
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| Fixed deposit account: |
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- A sum of money is saved for a certain period of time such as \(3\) months, \(9\) months or \(1\) year tenure.
- Account holders will be offered more competitive interest rates compared to savings accounts.
- Savings cannot be withdrawn before the maturity date.
- If the money is withdrawn before maturity, the actual interest rate that should be received will be reduced and will be cancelled at a certain time.
- A savings certificate will be issued to the account holder.
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| Current account: |
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- Savings in a current account can be used for personal or business purposes.
- The account holder may make payment to another party by cheque.
- Savings in the account will not be paid interest and is subjected to service charges. However, there are certain banks that pay interest to the current account holders.
- The current account applicant must submit a referral who is an existing current account holder at the same bank to open the account.
- In addition to cheques, normal withdrawals are usually allowed via debit cards and other channels such as Internet banking, telephone banking and more.
- The account holder can enjoy an overdraft facility, that is, withdrawing money beyond the balance of the deposit, but with interest charges.
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Definition |
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Investment is an alternative step for future returns in the form of current income and capital gains.
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| Types of investments: |
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| (i) Shares |
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- A company will issue shares for the purpose of raising capital.
- The shareholders will receive returns in the form of dividends and capital gains.
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| (ii) Unit Trust |
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- Trust fund is controlled by a unit trust company that is managed by a qualified professional manager in the field of investment.
- Unit trust companies collect money from investors and invest the money in various potential companies with the aim of providing returns that benefit investors.
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| (iii) Real Estate |
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- Investments on immovable assets such as residential houses, shops and lands.
- Factors to be considered in real estate investments are economic situations, income-generating capabilities (rent), location and property prospects in the future.
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| Simple interest: |
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- A reward given to depositor at a certain rate on the deposit amount (principal) for a certain period of time (in years).
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Formula |
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\(I=Prt\),
where \(I\) is the interest, \(P\) is the principal, \(r\) is the rate and \(t\) is the time (years).
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Example |
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Encik Ali deposited \(\text {RM}6\,000\) at Bank Bunga Raya with an interest rate of \(2 \%\) per annum.
How much is the interest earned by Encik Ali after \(1\) year?
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\(P=6\,000\)
\(r=2\%=\dfrac{2}{100}=0.02\)
\(t=1\)
\(\begin{aligned} \\I&=Prt\\\\&= \text{RM}6\,000\times 0.02 \times 1 \\\\&=\text{RM} 120. \end{aligned}\)
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| Compound interest: |
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- Interest that is calculated based on the original principal and also the accumulated interest from the previous period of savings.
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Formula |
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\(MV= P \bigg( 1 + \dfrac{r}{n}\bigg)^{nt}\) |
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\(MV\) = matured value
\(P\) = principal
\(r\) = yearly interest rate
\(n\) = number of periods the interest is compounded per year
\(t\) = term in years
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Example |
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At the beginning of a year, Encik Ahmad saves \(\text {RM} 10 \space000\) in his savings account with a rate of \(4 \%\) per annum and compounded every \(6\) months.
What is Encik Ahmad's total savings at the end of the third year?
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\(P= \text {RM} 10 \space 000\)
\(r= \dfrac{4}{100}=0.04\)
\(n=2\), \(t=3\)
\(\begin{aligned} MV&= P \bigg( 1 + \dfrac{r}{n}\bigg)^{nt} \\\\&= 10 \space 000 \bigg( 1 + \dfrac{0.04}{2}\bigg)^{2(3)} \\\\&= 10 \space 000 (1.1262) \\\\&= \text{RM} 11 \space 262. \end{aligned} \)
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| Islamic banking: |
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- Based on Islamic law (syarak).
- Risk is managed according to the agreement.
- Based on the principle of justice, halal and profit-sharing and without usury.
- Does not specify the rate of return on the early stage of savings.
- The real rate of return is known upon maturity.
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| Return on investment (ROI): |
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- The return value of each ringgit invested by the investor.
- Return on investment is also a ratio of profit or loss derived from an investment.
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Formula |
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\(\begin{aligned}&\space\text {Return on investment}\\\\&= \dfrac{\text{Total return}}{\text{Value of initial investment}} \times 100\%\end{aligned}\) |
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