For anyone who wants to invest but has zero experience, a time deposit might be the best place to start. A time deposit is similar to a savings account – you open an account, you deposit an amount and you earn interest.
Similar to a savings account, the requirements are generally the following:
- Customer Information Sheet/Record – available at the bank branch
- 1 to 2 1x1 ID photos
- 1 to 2 valid IDs with photo and signature such as passport, driver’s license, etc.
- Utility bill reflecting your address
- Initial deposit
The initial deposit or what banks call a minimum placement varies, as can be seen in the table below.
Unlike deposits in savings accounts, placements in time deposits cannot be easily withdrawn at any time. Time deposits are invested for a fixed period of time called term. The term ranges from as short as thirty (30) days or as long as one (1) year (some banks even offer a two [2] year term). At the end of the term, you will receive your original placement plus interest, net of tax. You may opt to roll it forward, reinvesting the original placement and its interest. If the placement is withdrawn before the end of the term (called pretermination), you will not receive the original placement and interest in full. A pretermination penalty will be charged.
Being restricted to use your own money might not sound very attractive but time deposit does have its advantages.
It gives relatively higher returns.
It provides higher returns or interest compared to just a regular savings account. The table above might not seem like it does but the lowest rate is assuming you will just invest the minimum amount. Your returns go up as you invest more money and hold it for a longer term. If you have P 50,000 to invest, below are the interest rates that you might enjoy depending on the term that you choose:
If you have P100,000 to invest, below are the interest rates that you might enjoy depending on the term that you choose:
If you have P1,000,000 to invest, below are the interest rates that you might enjoy depending on the term that you choose:
The rates are significantly higher than the typical 0.25% that you can earn from your savings account.
It's relatively safe.
Money placed in time deposits are relatively safe because it is not linked to the performance of the investment market such as stocks. Investments in stocks, for example, can fluctuate in the course of the day. Your gain (or loss) will depend on your strategy (particularly, the stock and timing) in buying and selling. A time deposit offers a fixed return at the end of the term.
It's forced savings.
Time deposit forces you to save. Unlike your payroll account, you would think twice withdrawing your time deposit before the end of its term because of the pretermination penalty you could incur.
* Pamela Lloren is a Certified Public Accountant and is currently teaching accounting and finance subjects at the University of the Philippines.
