Investing in Time Deposits

Investing in Time Deposits
In my previous posts, I've focused almost exclusively on saving. This was by design. Although Personal Finance is more than just saving, saving is undeniably the first step. The second is preparing your emergency fund. But since preparing an emergency fund has already been much discussed elsewhere. I will proceed directly with this blog's main mission - helping people with investment options. Which brings us to Time Deposits.

Time Deposits (a.k.a. Certificate of Deposits, CDs, Term Deposits, or TDs) are one of the safest investments we can make. Just like savings accounts, PDIC insures the money of depositors up to 500,000 pesos. But unlike savings accounts, they can offer a more substantial return.

This makes it possibly the best investment vehicle for conservative and beginner investors. And even experienced or aggressive investors can take advantage of it because of the security it offers.

So are there also a lot of factors when choosing where to open a Time Deposit? Well, there are some, such as:

Interest Rate - typically between 1% to 3% or more. This depends on the length of Term, the amount of your deposit, and the Bank. It is paid at the end of the Term.

Term - the length of time the money will be held by the bank. It can be anywhere from 30 days to 365 days. If the money is withdrawn before the end of the term (or before it has matured), not only will the interest not be paid, but penalties may also be imposed.

Deposit Amount - banks require a certain amount if you would like to open a time deposit account. Depending on the bank, this can be as low as 1,000 pesos.

But unlike savings accounts, proximity is not as big a factor. Mostly because we will access our account only twice - once to open it, and then when it matures. Once it matures we can decide to do one of three things:

  • take our money, both principal and interest, and place it somewhere else.
  • take the interest, and re-enroll the principal to keep earning interest
  • roll over the amount to earn more (due to a higher principal)

I've compiled a list of some of the biggest banks and their interest rates to help us get started in choosing which Time Deposit works for us. (I would have included more, except a lot of banks don't have this information online.)

(Last updated on June 01, 2013)

BDO

Amount 30 Days 60 Days 90 Days 180 days 360 days
1,000 to below 10,000 0.5% 0.5% 0.5% 0.875% 0.875%
10,000 to below 50,000 0.5% 0.5% 0.5% 0.875% 0.875%
50,000 to below 100,000 0.75% 0.75% 0.75% 1.00% 1.00%
100,000 to below 200,000 0.875% 0.875% 0.875% 1.125% 1.125%
200,000 to below 500,000 0.875% 0.875% 0.875% 1.125% 1.125%


Metrobank

Amount 30 - 59 Days 62 - 178 Days 181 - 364 Days
10,000 to 49,999 0.25% 0.25% 0.50%
50,000 to 199,999 0.25% 0.50% 0.75%
 200,000 to 499,999 0.375% 0.625% 0.875%


BPI

Amount 35 Days 63 Days 91 Days 182 days 364 days
1,000 to below 10,000

0.125% 0.250% 0.375%
10,000 to below 50,000 0.125% 0.125% 0.25% 0.375% 0.500%
50,000 to below 100,000 0.375% 0.375% 0.375% 0.500% 0.625%
100,000 to below 500,000 0.500% 0.500% 0.500% 0.625% 0.750%


BPI Family

Amount 35 Days 63 Days 91 Days 182 days 364 days
1,000 to below 10,000

0.375% 0.500% 0.625%
10,000 to below 50,000 0.375% 0.375% 0.500% 0.625% 0.750%
50,000 to below 100,000 0.625% 0.625% 0.625% 0.750% 0.875%
100,000 to below 500,000 0.750% 0.750% 0.750% 0.875% 1.000%


China Bank  
(inquire also about their Diamond Savings Account and the difference with term deposits) 

Amount 30 - 59 Days 62 - 178 Days 181 - 364 Days
5,000 to 49,999 0.500% 0.625% 0.750%
50,000 to 199,999 0.500% 0.625% 0.750%
 200,000 to 499,999 0.625% 0.750% 0.875%

*All information were taken from the banks' official websites. But to be safe, please verify with the bank before making any financial decisions with this information (specially since rates can change often).

There are obviously other banks in the Philippines, and some might offer even higher interest rates. But hopefully these examples have given you an idea on how Time Deposits can help you. In Australia time deposits are called term deposits, you can see here http://www.hsbc.com.au/1/2/personal/savings/foreign-term/rates

(Another resource to checkout if you're interested in Time Deposits is Philippines.deposits.org - although it doesn't have all the details like how much the deposit has to be to earn the interest.)

In my next post I will discuss Laddering, an investing strategy used for time deposits.

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This is part of a  series on bank products:



photo credit: ani! via photopin cc

5 comments:

  1. Again, the interest rates went down :/
    BDO alone, form 0.0875 down to 0.500

    ReplyDelete
  2. Thanks for this, although, yes, some of the interest rates went down over time. Time deposit may not beat inflation, but it's a good option to keep a percentage of your money that needs to be liquid but must still earn by doing so such as your emergency fund. :) Great site you have here. :)

    ReplyDelete
  3. hello want to ask about the 20% Withholding tax on interest earned.. meaning
    if i will choose time deposit at bdo for example for 180 days and my money by the end of 180 days is 10k it will yield
    10k (principal)
    5000k (interest) from the .500% interest.. but from this interest they will deduct 20% withholding tax is that right?? so after all i'll get 12k

    ReplyDelete
  4. Hi Kruz,

    Hmm.. actually your 10000 at 0.5% interest will yield only Php50 (it's really .5% not 50%)

    But bank deposit interest rates are actually annual, so you get the Php50 only after one year. Since it's a 180-day term (6 months), you get half that - Php25.

    And yeas, the Php25 is subject to 20% withholding tax. So you get roughly Php20 at the end of 6 months.

    ReplyDelete
  5. Any updates as of 2016?

    ReplyDelete