Savings and Investments

3.1  Savings and Investments

Savings refer to excess money deposited in the safe box, money box or drawer.

Savings account:
  • 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  • The savings can be withdrawn by using a debit card via an automatic teller machine (ATM).
Fixed deposit account:
  • 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  • Savings cannot be withdrawn before the maturity date.
  • If the money is withdrawn before maturity, the actual interest rate that should be received will be reduced and will be cancelled at a certain time.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.
Current account:
  • 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.

Investment is an alternative step for future returns in the form of current income and capital gains.

Types of investments:
(i) Shares
  • A company will issue shares for the purpose of raising capital.
  • The shareholders will receive returns in the form of dividends and capital gains.
(ii) Unit Trust
  • 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.
(iii) Real Estate
  • 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.
Simple interest:
  • A reward given to depositor at a certain rate on the deposit amount (principal) for a certain period of time (in years).


where \(I\) is the interest, \(P\) is the principal, \(r\) is the rate and \(t\) is the time (years).


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? 





\(\begin{aligned} \\I&=Prt\\\\&= \text{RM}6\,000\times 0.02 \times 1 \\\\&=\text{RM} 120. \end{aligned}\)

Compound interest:
  • Interest that is calculated based on the original principal and also the accumulated interest from the previous period of savings.
  \(MV= P \bigg( 1 + \dfrac{r}{n}\bigg)^{nt}\)  

\(MV\) = matured value

\(P\) = principal

\(r\) = yearly interest rate

\(n\) = number of periods the interest is compounded per year 

\(t\) = term in years


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?


\(P= \text {RM} 10 \space 000\)

\(r= \dfrac{4}{100}=0.04\)


\(\begin{aligned} MV&= P \bigg( 1 + \dfrac{r}{n}\bigg)^{nt} \\\\&= 10 \space 000 \bigg( 1 + \dfrac{0.04}{2}\bigg)^{2(3)} \\\\&= 10 \space 000 (1.1262) \\\\&= \text{RM} 11 \space 262. \end{aligned} \)

Islamic banking:
  • 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.
Return on investment (ROI):
  • 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.
  \(\begin{aligned}&\space\text {Return on investment}\\\\&= \dfrac{\text{Total return}}{\text{Value of initial investment}} \times 100\%\end{aligned}\)