Published: June 13, 2018 | Updated: February 5, 2020 | Posted by: Venus Zoleta | Personal Finance
When opening an account with a bank, you’ll have to choose from among various types of bank accounts. Should you have a savings account or a checking account? If you’re getting a savings account, should you go with an ATM card or a passbook? Or is a time deposit the better choice?
Before you make that crucial decision, understand first the key differences between the common types of bank accounts in the Philippines. This will help you figure out which bank account type best fits your needs and purpose.
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Bank accounts include a broad range of financial products such as credit cards, prepaid cards, loans, and investments. But in the Philippines, bank accounts are usually associated with deposit accounts that allow customers to keep their money for saving or spending, manage funds, and perform a variety of financial transactions.
Having a bank account is more secure than storing cash under the mattress. All deposit accounts in the country are insured with the Philippine Deposit Insurance Corporation for up to PHP 500,000 per depositor per bank. So when the bank where you have an account with closes down, you’ll get to recover your money.
Ironically, more Filipinos prefer to keep their money at home rather than place it in a bank. The Bangko Sentral ng Pilipinas Financial Inclusion Survey found that 32.7% of adult Pinoys have bank accounts while a majority (68.3%) don’t.
So if you’re planning to open a bank account, pat yourself on the back because you’re making a smart financial decision.
Whether you’re opening your first bank account or exploring other options, here are the types of bank accounts to consider.
A savings account is a good place to keep your savings, extra cash, or emergency fund. It allows you to deposit cash and checks as well as withdraw funds, but you can’t issue checks.
Savings accounts are usually the first bank accounts that Filipinos open because of their low initial deposit and maintaining balance. You can open savings account for as low as PHP 100 and maintain it with only a PHP 2,000 balance. This is why a savings account is ideal for children, teenagers, and adults with no stable income.
However, savings accounts pay low interest with annual rates of less than 1%. There’s also a penalty fee ranging from PHP 200 to PHP 500 if your balance goes below the bank’s required maintaining balance for more than 30 days.
You’ll be charged an ATM service fee when you make a balance inquiry or withdraw cash from the ATM of another bank. Banks also impose transaction limits per day and per single transaction.
Savings accounts share some similarities with payroll accounts like ATM withdrawals, but they’re entirely different. Employers open payroll accounts to pay the salaries of their employees. Unlike savings accounts, payroll accounts don’t require an initial deposit and maintaining balance.
When you open a savings account, the bank staff will ask you to choose between an ATM account and a passbook account.
Go with an ATM savings account if you’ll use it mainly for spending and need easy access to funds using an ATM or debit card. ATM accounts also have lower maintaining balance and initial deposit requirements than passbook accounts.
A passbook savings account is the better choice if you won’t touch your money as often. Bank accounts with passbooks are ideal for Pinoys who prefer traditional banking where transactions and account balances are recorded in a small notebook. This makes passbook accounts safer than ATM accounts, as there’s no risk of ATM skimming and other banking scams.
A checking account, also called current account, is a basic deposit account that’s different from a savings account. For one, it costs higher to open and maintain checking accounts and savings accounts.
Paper checks are becoming less popular, being overshadowed by digital payment modes. Still, they’re relevant in the Philippines. Current accounts come with an ATM or debit card that can be used for withdrawals and payments. You’re likely to open a checking account if you have a personal loan, auto loan, or housing loan that requires repayments through post-dated checks. If you’ll have one, consider using it also for your regular transactions such as rent, bills, and tuition payments or managing your business expenses.
Looking for a low-risk investment that pays higher interest than a typical savings account? A time deposit is a perfect choice, especially for first-time or conservative investors who need to store money they won’t be spending anytime soon.
Opening a time deposit involves keeping your funds in the account for a fixed period of one month to seven years. You won’t have access to your money until that period is over. Early withdrawal is possible, but it comes with a penalty that can exhaust everything you’ve earned. The bank invests and lends your deposited funds. In return, you’ll be paid a higher interest after the account’s maturity.
Time deposit interest rates in the Philippines can go higher than 1% up to 3.50%. The higher the amount you deposit and the longer you hold it in the bank, the higher the interest you’ll get.
A dollar currency allows you to withdraw in peso or dollar, so you can opt to cash out in the currency with the better exchange rate. Having a dollar account is also good for your financial portfolio. You get to diversify your savings because it earns interest in dollars.
Most foreign currency bank accounts in the Philippines come with a passbook and are typically available in the following currencies:
While a peso account is more convenient (no need to go to a money changer), a foreign currency account makes better sense if you often transact in US Dollar or any non-local currency.
Foreign currency bank accounts are also a great option for the following people:
Another important consideration for would-be depositors is whether to open an individual account or a joint account. Business partners, associations, and couples commonly use a joint account for convenience and transparency in managing their shared income and expenses.
Held under more than one name, joint bank accounts can be a savings account, a checking account, or a time deposit.
Joint accounts come in two types: joint “and” and joint “or” accounts. A joint “and” account needs the signature of both account holders for withdrawals. On the other hand, a joint “or” account allows co-owners to withdraw anytime without the other person’s signature.
Only a passbook (no ATM card) is issued for “and” accounts, while “or” accounts provide an ATM for all account holders.