A 0.5-point gap on RM1 million is about RM5,000 a year before tax. Compare on the same holding period, separate locked from variable returns, confirm fees and compare after tax. If chasing it leaves RM300,000 on an 8% overdraft, about 76 days cancels the year's gain (illustrative).
“Our return is half a percentage point above FD.” You hear this a lot in conversations about company cash. Half a point sounds small; multiplied by a company's cash balance it sounds substantial. So how much is it? Let's just work it out.
First, the gap before tax
With a 0.5 percentage-point difference, the gap over one year, before tax (illustrative):
- RM500,000: about RM2,500
- RM1 million: about RM5,000
- RM2 million: about RM10,000
- RM5 million: about RM25,000
Hold it for three months and the gap is a quarter of that; six months, half. RM2 million for three months comes to about RM2,500.
For some companies that is worth the effort, for others it isn't. There's no standard answer, but at least you are now looking at an amount rather than a percentage. The calculator below compares three options, each with its own return, distribution method and simulated withholding rate. Try your own numbers:
Each option uses the same amount (it is not split three ways). Set each option's return, distribution method and simulated withholding rate. Rename them freely; A, B and C are not specific products.
If you change the holding period, also check each option's number of distributions or total distribution.
Swipe the table sideways to see options B and C →
| Item | Option A | Option B | Option C |
|---|---|---|---|
| Annual total return | 3% | 2.5% | 3.5% |
| Distribution method | Full distribution | Full distribution | Full distribution |
| Total return (incl. distribution) | RM30,000.00 | RM25,000.00 | RM35,000.00 |
| Income distribution | RM30,000.00 | RM25,000.00 | RM35,000.00 |
| Total return minus distribution | RM0.00 | RM0.00 | RM0.00 |
| Tax base | RM30,000.00 | RM25,000.00 | RM35,000.00 |
| Tax base source | Full distribution (assumed) | Full distribution (assumed) | Full distribution (assumed) |
| Simulated withholding rate | 24% | 24% | 24% |
| Simulated withholding tax | RM7,200.00 | RM6,000.00 | RM8,400.00 |
| Return after simulated withholding | RM22,800.00 | RM19,000.00 | RM26,600.00 |
| vs Option A | RM0.00 | −RM3,800.00 | RM3,800.00 |
| Final company tax | To be confirmed; not calculated | To be confirmed; not calculated | To be confirmed; not calculated |
Distributions are already included in the total return and are not added again. Return after withholding is not the final after-tax return.
The options have different returns: the gap reflects both the return and withholding tax, so it can't all be attributed to the distribution method.
One A4 page, generated on your device and never uploaded. The PDF is image-based, so text isn't selectable.
Formulas and assumptions
Total return = amount × annual total return × months ÷ 12. Units = amount ÷ purchase NAV. Distribution = units × per-unit amount × number of distributions; full mode uses the total return as the distribution; custom mode takes a share or an amount. Simulated withholding = tax base × withholding rate. Return after withholding = total return − simulated withholding.
Simple interest, constant units, distributions not reinvested, no compounding or other fees. A distribution is not extra return. The taxable amount on a distribution voucher may differ from the cash distribution; the default uses the full distribution, or enter the voucher figure. Withholding tax is not final company tax; credits and final liability are not calculated and must be confirmed by a tax agent. The overdraft section is pre-tax with simple daily interest.
Illustration from the numbers you enter; not a forecast, quote, product recommendation or guarantee. Funds are not deposits, and past returns and distributions do not guarantee future results. Everything is calculated on your device; nothing is saved or uploaded.
Then check the comparison is fair
Before comparing two rates, make sure they are measured with the same ruler:
- The same holding period. Compare a 12-month FD rate with money you actually plan to hold for 12 months, not with an annualised figure that can change at any time;
- One is locked, one moves. An FD rate is fixed when you place it. A fund's published annualised return reflects a past period and will move with market rates. When Bank Negara adjusts the Overnight Policy Rate (OPR), returns on short-term instruments usually follow;
- Fees. A fund's management fee is usually reflected in the unit price, but confirm it; transfer and transaction charges are extra;
- Compare after tax. A company's FD interest is taxable income. Money market fund distributions to companies involve withholding tax and tax credits, and the final result depends on the fund's distribution voucher and the company's own tax position. Both sides need to be taken to after-tax on the same basis; leave that step to your tax agent.
Many “half a point higher” comparisons shrink once they are on the same basis, and sometimes they widen. Either way, put them on the same basis first.
The most overlooked cost: the days cash runs short
As the first article in this series explained, when Layer 1 operating cash falls short, companies often draw on an overdraft, and overdraft rates are usually well above deposit rates. With illustrative numbers:
Illustration: an extra 0.5 points on RM1 million is about RM5,000 a year. If RM300,000 then has to be covered by an overdraft at 8% a year, that costs about RM66 a day. Roughly 76 days of overdraft cancels the whole year's gain.
That is why I always look at the cash forecast before the rate. The rate gap is a small, certain amount; the cost of a timing mismatch can be a large, uncertain one. (Article 1: Your company has RM1 million. Why not put it all in an FD?)
So when is half a point worth chasing?
Roughly when three conditions hold at the same time:
- You have a 13-week cash forecast and know this money genuinely won't be needed soon;
- The amount is large enough for the gap to matter to the company;
- You understand the risks you take on for it, including settlement timing, price movement and tax treatment, and your board agrees with the trade-off.
If any one is missing, leaving it at the bank is usually the calmer choice. For the risks of money market funds themselves, read Article 3: Can a money market fund actually lose money? →
If this sounds familiar
If you have two quotes in hand, an FD from your bank and another cash management option, and want to know how far apart they really are on the same basis, bring them and we can work it out together. The tax side we confirm with your tax agent.
More questions? Read: Corporate cash management, 15 questions business owners ask most →
Registered Financial Planner (RFP) · JMarc
This article is general financial education. All rates, amounts and the overdraft rate are illustrative. It is not investment, tax or legal advice and does not recommend any specific product. Actual rates and fees are as stated in the bank's and fund's official documents.
- How much is a 0.5% rate difference on RM1 million over a year?
- About RM5,000 before tax on simple interest, or about RM1,250 over three months. The actual amount depends on the holding period, fees and after-tax treatment.
- What should I watch when comparing FD and money market fund returns?
- Use the same holding period; an FD rate is locked while a fund's return is past performance that moves with market rates such as the OPR; confirm whether fees are deducted; compare both after tax, with the company's tax treatment confirmed by a tax agent.
Every situation differs. Yours deserves its own conversation.
Family Office Practice · Kuala Lumpur