Tuesday, November 18, 2025

Home Finance Wander Within Life Annual Deposit 5–6%: Safe First Step or Not Enough?

Annual Deposit 5–6%: Safe First Step or Not Enough?

From Savings to Investing Wander Within Life

When people around me talk about “investing”, most of the time it’s not stocks or crypto.

It’s something very basic:

“Just put money in annual deposit, the bank gives 5–6% per year. Safe.”

In Indonesia and Malaysia, this is usually called time deposit or fixed deposit.
The promise sounds nice: better than normal savings, very low risk, and I don’t have to stare at charts every day.

In this post, I want to整理 a few things for myself:

  • What exactly is an annual deposit?

  • How does it really work in Indonesia and Malaysia (interest, tax, inflation)?

  • Where does it fit in a money plan — and where it doesn’t.

This is not financial advice. It’s just how I try to understand the numbers before I park my money anywhere.

What is an annual / time deposit?

Very simple version:

  • You put money into the bank.

  • You lock it for a period: 1, 3, 6, 12 months (or more).

  • The bank gives you a fixed interest rate for that period.

Different from normal savings:

  • Savings account

    • Can withdraw anytime

    • Interest is usually very low

  • Annual / time deposit

    • Cannot touch easily (there’s usually a penalty if you break early)

    • Interest is higher and fixed

So far, this is still the “safe and boring” corner of the financial world.

What do the numbers look like today?

To make it less abstract, let’s look at what’s happening now in our region.

Indonesia

World Bank / YCharts data shows average deposit rates in Indonesia are around 5.4% in 2025. YCharts

BPS (Badan Pusat Statistik) data for commercial bank time deposits in 2025 also shows 1-month IDR deposits roughly in the 4.8–5% range.

So for a normal retail customer, seeing 5–6% per year offered by banks for IDR time deposits is not something crazy — it’s quite in line with the environment.

Malaysia

Malaysia is a bit different. Deposit rates are lower:

  • World Bank data puts Malaysia’s deposit interest rate around 2.6% recently. 

  • Big banks like Maybank and CIMB list 12-month fixed deposit board rates around 2.05% p.a. as of late 2025. 

So in Malaysia, “5–6%” on a plain fixed deposit in ringgit would actually be unusually high. For most people the realistic range is more like 2–3%.

Tax: how much of that interest do you actually keep?

This part often gets ignored when people see nice big percentages on the bank poster.

Indonesia: interest is taxed

In Indonesia, interest from time deposits and Bank Indonesia certificates is subject to a final tax of 20% on the gross interest (Article 4(2) Income Tax).

That means:

  • If the bank pays you 100% interest,

  • You only keep 80% after tax,

  • The 20% goes straight to the tax office (usually withheld by the bank).

Example (Indonesia):

  • Deposit: Rp 10.000.000

  • Rate: 5.5% per year

  • Interest before tax: 10.000.000 × 5.5% = Rp 550.000

  • Tax 20%: 550.000 × 20% = Rp 110.000

  • Interest after tax: Rp 440.000

So your effective return after tax is:

  • 440.000 ÷ 10.000.000 = 4.4%

Not 5.5% anymore.

Malaysia: deposit interest for individuals is generally tax-exempt

Malaysia is kinder here. For individuals, interest from money deposited in approved institutions (licensed banks etc.) is generally exempt from tax. 

So if you’re a normal individual:

  • Fixed deposit interest at 2.05%

  • You usually keep the full 2.05%, no extra tax.

Nice, but don’t celebrate too fast. We still have one more thing to consider: inflation.

Inflation: are you really “growing” your money?

Inflation = the slow, annoying price increase of everything.

What inflation looks like now

  • Indonesia: various sources (World Bank, FocusEconomics, official stats) show average inflation in 2024 around 2–2.5%, and Bank Indonesia’s target for 2024–2025 is in the 1.5–3.5% range. 

  • Malaysia: Department of Statistics Malaysia and other sources show inflation for 2024 around 1.8% on average.

These are not hyperinflation numbers, but they still quietly eat your money in the background.

Put it together with our deposit examples

Indonesia example (again)

  • Deposit interest after tax: 4.4%

  • Average inflation (recent years): say around 2–2.5%

Very rough, lazy-math:

Real growth ≈ 4.4% − 2.3% = ~2.1%

So you’re still growing in real terms — slowly, but above inflation.

Malaysia example

Lazy-math again:

Real growth ≈ 2.05% − 1.8% = ~0.25%

So in ringgit terms, you’re just slightly above inflation. It’s more like preserving your money’s value than “investment that makes you rich”.

The key lesson for me:

Looking at the headline rate (5–6% or 2–3%) is not enough.
I have to look at after tax and then compare it with inflation.

So… is annual deposit good or not?

I don’t see it as “good or bad”. I see where it fits.

Where annual deposits make sense

  1. After I have an emergency fund

    • My basic emergency fund (1–3 months) stays in something very liquid.

    • Anything above that, which I won’t touch for 6–12 months, can go into a time deposit.

  2. Short-term goals (1–3 years)

    • Example: small renovation, a new laptop, study fee.

    • I don’t want to gamble this money in high-risk assets.

    • Parking it in a deposit keeps the value relatively stable and gives a small reward.

  3. For people who get anxious with volatility

    • Not everyone can sleep if their investment goes -10% in one week.

    • Fixed deposits are “boring”, but that boring feeling is exactly what some people need.

Where annual deposits are not enough

  1. Long-term wealth (10–20+ years)

    • If my entire long-term plan is only deposits, in many scenarios I’m just walking slightly ahead of inflation.

    • For retirement or bigger dreams, most people eventually need some exposure to growth assets (stock funds, etc.), with proper risk management.

  2. Beating real inflation consistently

    • Governments can keep inflation low now, but we don’t know future policy.

    • A strategy that depends only on 2–4% deposit returns might struggle if inflation suddenly rises.

  3. When there are better opportunities I understand

    • If I already have education about low-cost diversified funds, for example,

    • Keeping too much in deposits becomes a huge opportunity cost.

So for me, annual deposits are like:

🧊 Parking spot for money that is “resting” for a while,
not the main “engine” that grows my net worth.

Simple mental map for my own money

This is how I try to picture it:

  1. Layer 1 — Safety (Emergency Fund)

    • Normal savings / e-wallet

    • Priority: can take out anytime

    • I don’t care about high return here; I care about sleep.

  2. Layer 2 — Parking (Short-Term Savings)

    • Annual / time deposits

    • Money I won’t use for 6–12 months or a bit more

    • Combination of “relatively safe + slightly better return”

  3. Layer 3 — Growth (Long-Term Investing)

    • This is where I need to study more:

      • What is an index fund?

      • What is a bond fund?

      • How to spread risk?

    • The goal here is to grow faster than inflation over many years, accepting short-term volatility.

Right now, many people jump straight from Layer 1 to crypto/forex because the promise is “fast money”. I prefer to build the layers slowly, even if it feels boring.

Gentle reminder

  • Numbers in this post (interest rates, tax, inflation) are based on public sources for Indonesia and Malaysia at the time of writing and can change.

  • Everyone has different:

    • Income

    • Risk tolerance

    • Money goals

So this article is just a thinking tool, not a personal recommendation. If someone wants to put 100% in deposits forever, or 0% — that is their choice. For me, I just want to understand what 5–6% (or 2–3%) really means after tax and inflation before I feel “safe”.

In the next finance posts, we can slowly move to:

  • “What is investing?” in very plain language

  • The basic types of assets (cash, deposits, bonds, stocks)

  • How I might decide “how much in savings, how much in deposit, how much in real investing”

Step by step. No rush.

Sources I used (for your reference, not to paste into the article)

If deposits already feel familiar and you’re curious about what comes after, this is where investing slowly enters the picture.
I wrote a simple overview here:
What Is Investing? A Simple Map Before I Touch Stocks.
And if you want to see how I decide the split between savings, deposits, and investing in real life, you can read:
How I Decide How Much Goes to Savings, Deposits, and Investing.
EL Wander Within Life


Tags
Share This
By -
Tags ,

No comments:

Post a Comment

Subscribe to: Post Comments (Atom)

Post Top Ad

Your Ad Spot