13 Things You Should Know About Time Deposit

Let’s say you have extra P10,000. Where do you plan to use that money?

Shopping for your family back home is a good idea, but if you have to be wiser about your money, you will invest it to make it grow. The question now is where to invest it.

Stock market is a good option because of higher return. On the other hand, the risk of losing your money is higher as well. If you’re more of a conservative investor, then you might consider time deposit.

Time deposit is a type of bank account that allows you to earn fixed interest rate over a specific period of time. Typically, the higher the amount, the higher the interest rate, which also means higher earnings. Unlike your usual savings account, you cannot withdraw the amount anytime, unless you are willing to pay for pre-termination fees.

Is it worth it? How much can you earn in this type of investment? What is the preferred term for time deposit?

Don’t worry. Here are things you need to know before you place your money in time deposit:

It Is Easy To Understand

Time deposit doesn’t require you to read books to know more about how this investment option works. Once you opened an account with your bank of choice, just leave the money there and it will earn interest, which you can enjoy upon maturity date.

You Can Open A Time Deposit Account Easily

Did you know that P1,000 is enough to open a time deposit account? Some may start at P5,000 but the point is you can start with low amount.

However, if you want to earn higher amount, then higher deposit and longer term are required. This could be a good option IF you won’t use your funds yet. Otherwise, shorter term is recommended.

Aside from the amount, you can easily open a time deposit account since the process is similar to savings account. Instead of ATM or passbook, the bank will issue a Time Deposit Certificate under your name. It also specifies the amount, term, interest rate, and maturity date.

Choose Your Lock-In Period

Time deposit account is flexible, thereby addressing your short and medium-term financial goals. In fact, you can choose your account’s maturity period, which is between 30 days and seven years, depending on the bank. Make sure you ask your bank about the loan term to help you decide the right duration according to your needs.

Take note that by lock-in, this means you cannot withdraw the amount at anytime. You have the option to withdraw the amount upon maturity date OR the proceeds of the interest and then opt for roll-over so it will earn more interest.

Additional Deposits Are Not Allowed

This is the thing about time deposit. Once you opened an account, that’s it. You cannot make additional deposits. The only time you can do this is upon maturity.

Higher Interest Rate Than Savings Account

Despite the lock-in, you can earn more in time deposit compared to savings account. Unlike the latter with less than one percent interest rate, time deposit accounts allow you to earn up to five percent. It is also fixed, which means it will remain the same all throughout the term.

Of course, your earnings will depend on the amount of deposit on your account, term, and rate offered by your chosen bank. Ask about this so you will know how much you can earn given a particular amount.

It Is A Safe And Stable Investment Option

Time deposit is ideal for conservative investors who are still unsure where to place their money. There are many investment options available, so if you don’t know yet where to put your hard-earned money sans the risk of losing it, then time deposit is advisable.

Higher Deposit + Longer Term = Higher Earnings

This is the formula if you want to earn more in time deposit. Believe it or not, investing P50K for five years lets you earn more than your P5,000 investment for one month.

If you have extra money to spare and you’re unsure where to use it, then place it in a time deposit. This way, you won’t be able to spend it and reduce the risk of losing your money.

You Can Get Your Interest Earnings

You have three options upon maturity of your time deposit account. You can:

• Withdraw the interest amount earned and then renew the time deposit account.
• Withdraw the entire amount including interest earned.
• Roll-over or renew the time deposit wherein the interest is compounded. This means the new amount reflects the added interest earned, which will now be multiplied to the interest rate.

If you still don’t have plans on where to use the money but want to enjoy the benefits of your investment, then you may opt for the first option.

You Can Use Your TD Account As A Security For Loans

Yes, you read that right. Banks allow you to borrow money and use your TD account as a security of the loan. Loanable value could be 80 to 90 percent of the total placement value of your time deposit, depending on the bank.

If you plan to apply for a loan and you want to use you time deposit as a collateral, then it is advisable that you apply on the bank where you have your TD. This way, processing your loan application will be easier.

Foreign Currency Is Accepted

Just like savings account, you may open a time deposit in foreign currency, which is usually in US Dollars. However, there are few banks like BPI and Metrobank who accept other currencies like British Pound, Japanese Yen, and Chinese Yuan.

The good thing about this is that since you are – most likely – earning in dollars, you can open a time deposit account in foreign currency without worrying about foreign exchange fees and differences in peso-dollar rates.

You Cannot Escape Taxes

Banks won’t require you to pay processing fee when you open a time deposit account. Unfortunately, it cannot escape government-imposed taxes. There will be 20 percent final withholding tax as well as documentary stamp tax of P1.50 for every P200.

If the term is more than five years, then you will be exempt from tax.

Withdrawal Is Not Allowed

This is the limitation of time deposit accounts. If you need quick cash, then terminating your TD is not a good option. Otherwise, you have to pay for penalty or pre-termination fee, which is usually 10 to 50 percent of the interest earned.

Ask your bank about this since some banks convert the time deposit account into regular savings account IF withdrawing money is truly necessary.

It Is Insured By The PDIC

Known as the Philippine Deposit Insurance Company, PDIC insures time deposit accounts up to P500,000. Of course, you wouldn’t want your bank to go bankrupt, but it’s good to know that you are protected.