Is a time deposit in the Philippines a good investment option? Cliche as it may sound, the answer is "It depends." It depends on your financial goals, as well as the bank where you’ll open a time deposit.
In general, having your money held by the bank for a long time can be beneficial, except when you decide to terminate your agreement earlier than expected. Several other considerations may also affect your decision whether to go for it or invest elsewhere.
Making a smart investment decision starts with knowing and understanding what you’ll be getting into. Of course, you want to grow your money, not lose it. So here’s what you need to know about time deposits in the Philippines.
What is Time Deposit?
A time deposit (also known as a term deposit or fixed deposit) is a type of bank account that earns a fixed interest but can’t be withdrawn over a specified term or period.
Although a time deposit in the Philippines is a deposit account like regular savings and checking accounts, this bank product differs in terms of earning interest.
When deciding whether to open a time deposit account or not, there are three things you should primarily consider:
- Interest rate - This represents your earnings when you put your money in the bank for a specific duration. Interest rates differ depending on the bank, holding period, and amount you’re willing to deposit.
- Holding period - This refers to the length of time in which you allow the bank to hold your money until its maturity.
- Deposit amount - How much are you willing to set aside for a Philippine time deposit account? Decide on your deposit amount early on by seeing to it that it won't hurt your savings, emergency funds, and monthly budget.
How Time Deposit Works in the Philippines
A time deposit in the Philippines simply allows you to have the bank take care of your money for a period of time. In return, the bank repays you in the form of earned interest. Your deposited money will be lent by the bank to other customers at a higher interest rate.
For example, if you opened a time deposit in the Philippines worth ₱50,000 for one year at 3% interest, you’ll be earning approximately ₱1,500 for 12 months. In the period your time deposit matures, your total money in the bank is more or less ₱51,500.
Meanwhile, the bank then lends out your ₱50,000 to other customers at an interest rate of 5% per month. The bank earns more or less ₱2,500 monthly from it, which translates to a total of ₱30,000 worth of profits in a year.
The difference between what the bank earns and what it pays you for your time deposit interest is called net interest margin―a profitability metric that compensates for the risks the banks take when issuing money to borrowers and securing your money at the same time.
How to Open a Time Deposit in the Philippines
Opening a time deposit account is simple. Choose a bank, prepare the requirements, and make sure you have an initial deposit. You also need to be okay with the fact that the money you deposit can’t be withdrawn for a while.
As for the initial deposit or minimum placement, it depends on the bank you choose. The minimum amount for a time deposit can be as low as ₱1,000 to as high as ₱ 100,000.
From there, select your lock-in period or the length of time you want your money to remain in the bank. Most financial institutions in the Philippines have a lock-in period of 30 days to 5 years.
What are the Requirements to Open a Time Deposit?
Opening a time deposit account is similar to opening a savings account. Although the requirements vary depending on the bank, here are some of the basic documents you need to prepare:
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How to Compute Time Deposit Interest
Knowing how to compute the interest in a time deposit account will help you decide which bank to open one in. For example, you have an initial deposit of ₱100,000, which will be locked in for 60 days at 3% interest, the formula will be:
Deposit amount x 3% x (60 days/365 days) x 0.80%
Take note that we can only use 0.80% because we already deducted the 20% withholding tax imposed on time deposit accounts.
- ₱100,000 x 3% x 0.164 x 0.80%
- ₱3,000 x 0.164 x 0.80%
- ₱492 x 0.80%
- ₱393.60 = interest earned for 60 days
What are the Fees and Charges of a Time Deposit?
A time deposit account can be more profitable compared to regular savings accounts. However, it also comes with fees and charges you should be ready to cover. The fees may vary depending on the bank.
- Documentary stamp - ₱1.50 for every ₱200
- Withholding tax for interests earned - 20% for Peso account and 15% for Dollar account
- Pre-termination fees within
- First half of your term (short-term) - 25% of the agreed interest rate
- Second half of the term (short-term) - 50% of the agreed interest rate
- Before 5 years (long-term deposit) - 5% final tax
- Before 4 years (long-term deposit) - 12% final tax
- Before 3 years (long-term deposit) - 10% final tax
Note: Most time deposit accounts in the Philippines will not be subject to fees and penalties if terminated within seven days after account opening.
What's the Best Bank for Time Deposit?
Top banks in the Philippines offer time deposits with different terms and interest rates. So the best bank for time deposit is one that works best for you and meets your savings goals and requirements.
To help you decide, here’s a list of banks that offer time deposits in the Philippines and their interest rates. Rates are based on an initial deposit of ₱100,000 with a lock-in period of 360 days.
As of date, China Bank has the highest interest rate for time deposits in the Philippines.
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Is a Time Deposit in the Philippines Worth Having?
Time deposits offer a higher interest rate compared to other regular bank products. However, when deciding whether it’s worth having or not, some would take into consideration the length of time and the penalties entailed with early agreement termination.
If you’re planning to open a time deposit account, remember that this bank product is best if you:
- Have several sources of income to draw money from instead of pre-terminating your time deposit account
- Have already saved for emergencies
- Are not looking at withdrawing your money for a long time
- Have sufficient cash on hand to pay for your basic needs
- Are setting aside money for a long-term goal
- Agree to the time deposit’s terms and conditions
- Accept all fees and charges entailed with the account
The Pros of Investing in a Time Deposit Account
Before putting your money in any time deposit in the Philippines and having it locked for quite some time, know its advantages so you can maximize the benefits.
1. You Can Invest for as Low as ₱1,000
The required minimum amount to open time deposits in the Philippines ranges from ₱1,000 to ₱100,000, depending on the bank and the specific product it offers.
It’s cheapest to open time deposits in AUB, and LANDBANK with just a minimum placement of ₱1,000.
Time deposits in other banks with higher interest rates and longer terms require higher minimum placements. For example, Security Bank has the highest required minimum placement for a Peso time deposit at ₱100,000. It also has the longest term option of seven years and competitive rates ranging from 3.50% to 4.60%.
2. Time Deposits are a Safe and Stable Investment Option
It has a lower risk than other types of investment. Unlike stocks and real estate, they guarantee a return on your investment (plus any interest earnings).
Simply put, there’s no danger of losing your money in a time deposit. This makes it perfect for conservative investors who want to grow their money but have a low tolerance for risk. It’s also ideal for capital preservation, especially for senior citizens who can’t afford to lose their pension or retirement fund.
3. Interest Rates are Higher Than Regular Savings Accounts
Most savings accounts yield only less than 1% interest. Even the high-interest savings accounts in the Philippines earn just a little over 1%.
In contrast, time deposits can earn as high as 5%, depending on the term and deposit amount.
Time deposit rates in the Philippines are higher than interest rates of traditional savings
accounts because funds remain on hold for a pre-specified period. During this time, banks can use the funds to re-invest or lend them for higher profits.
4. Interest Rates are Fixed and Guaranteed
A time deposit’s interest rate doesn’t change throughout the lock-in period, which means its fixed rates in the Philippines have their pros and cons.
Because your rate will remain the same, you can compute how much interest your time deposit will earn, even if market rates begin to drop after you’ve opened your account.
The fixed rates become disadvantageous, though, when market interest rates increase. You’ll be stuck on your lower rate.
5. You’ll Get Higher Earnings with a Higher Deposit and Longer-Term
Banks in the Philippines have tiered time deposit rates, which increase as the minimum placements go higher and the terms grow longer. For example, you’ll get a higher interest rate with a ₱ 50,000 deposit for a five-year term than a lower deposit of ₱1,000 for only one month.
Thus, the larger the amount you invest for a longer period, the higher your earnings will become.
6. You Can Receive Interest Payouts
You can still receive interest payments even if you can’t withdraw money from your account. Banks release interest payouts every month, quarter, or year through a check or through your savings or checking account.
Alternatively, you may opt to receive your interest payment along with your principal (the amount you deposited) when the term ends.
7. Time Deposits are Also Available in Foreign Currencies
Time deposits in the Philippines are not just limited to Philippine Peso accounts. Most banks offer time deposit products in US Dollars. A few ones like BPI and Metrobank have a wide variety of foreign currencies, including the Chinese Yuan, Japanese Yen, and British Pound.
This is a great option for Filipinos, especially OFW families, who receive overseas remittances. You can place the amount straight into your account without having to convert it to the peso and pay foreign exchange fees.
8. It’s Simple to Set Up and Understand
Opening an account is as easy as opening regular savings or checking account. You just need to visit your bank of choice, present at least one valid ID, and fill out account opening forms.
However, instead of an ATM card or passbook, the bank will issue a certificate of time deposit that serves as your proof of deposit. This document will also show the account details, such as the term, interest rate, and maturity date.
Time deposits in the Philippines are easy to learn and understand, too. Once you’ve opened an account, you won’t have to spend time learning about it. Unlike stocks, real estate, and mutual funds that require time and effort in analyzing market trends. Just wait until it matures. You can then decide whether you’ll withdraw your funds or invest again for another period.
9. No Fees Involved, But Earnings are Taxed
Most banks don’t charge any upfront or ongoing service fees on their time deposit products. However, time deposits in the Philippines aren’t exempt from government-required taxes (except for accounts with a term of five years or longer). A 20% final withholding tax and a documentary stamp tax (₱1.50 per ₱200) are deducted from the interest earnings.
10. Time Deposits are Insured
Time deposits in the Philippines have insurance of up to ₱500,000 by the Philippine Deposit Insurance Corporation (PDIC). This means you’ll get your money back in case the bank closes down, as the PDIC will pay you deposit insurance.
11. You Can Borrow Money from Your Time Deposit Account
Time deposits in some banks like PSBank have a credit facility of up to 90% of the total deposit amount. If your time deposit has this feature, it means you can borrow up to a certain percentage of your total placement.
Cons of Investing in a Time Deposit Account
Like any investment, a time deposit also has its drawbacks. Here are some that you should be aware of.
1. Funds are Locked in for 30 Days to Seven Years
Time deposits in the Philippines are suitable for short-term to medium-term financial goals. This is because their lock-in or maturity periods can be as short as one month to as long as five or seven years.
Depositors can choose to have their money held (and keep earning interest) by the bank for a fixed term of 30 days, 12 months, five years, or whatever holding period is available for a particular time.
This means your funds in your account remain with the bank during the entire duration of its maturity period, unlike with regular savings and checking accounts that can be withdrawn at any time. With a time deposit, you can access your money only when its term or maturity period ends.
Depending on your investment horizon, you have the option to either withdraw your funds upon your account’s maturity or let it continue earning interest for another term, which can be shorter or longer than the original term.
2. You Can’t Place Additional Deposits
Once you’ve deposited a certain amount in your time deposit account, you can’t place extra deposits as you can with a savings or checking account. If you have extra money that you want to invest, you’ll have to open a new account or put it in another investment channel.
3. There’s a Penalty Fee for Early Withdrawal
If an emergency comes up, the bank will allow you to make an early withdrawal from your time deposit account. But withdrawing before the maturity date has a consequence: you’ll be charged a pre-termination penalty, which is a percentage (usually 10% to 50%) of the interest earned. Other banks have an early withdrawal penalty in the form of reverting to the bank’s regular savings rate that’s lower than the time deposit rate.
4. You Won't Have Readily Available Cash For Emergencies
Putting your money in a time deposit account reduces your readily available cash for emergencies. This means you need to set aside a separate fund for immediate needs so you won't withdraw your deposit and pay penalties.
5. There's No Chance of Earning Higher Within the Lock-In Period
Interest rates for time deposits are fixed from the time you open an account until its maturity. These rates aren't affected by market conditions and won’t give you the chance to earn a little more if the market becomes more favorable.
Most savings accounts yield only less than 1% interest. Even the so-called high-interest savings accounts in the Philippines earn just a little over 1%.
In contrast, time deposits can earn as high as 5%, depending on the term and deposit amount.
Time deposit rates in the Philippines are higher than interest rates of traditional savings accounts because funds remain on hold for a pre-specified period. During this time, banks can use the funds to re-invest or lend them for higher profits.
Educating yourself about savings and investment products like a time deposit in the Philippines is a good way to start your investment journey. Understanding how time deposits will affect your finances will also help you make more informed and profitable financial decisions.
Moreover, this type of investment is a good option if you’re looking for more than just safekeeping your money. But if it isn’t aligned with your financial goals, explore other higher-yielding investment tools such as stocks, mutual funds, and UITFs as well.
DISCLAIMER: Information published on this blog or elsewhere on www.moneymax.ph should be used for general information purposes only and does not constitute investment advice, performance data or any solicitation or recommendation that any security, investment product, transaction or investment strategy is suitable for any specific person. This material does not take into account your financial situation, risk tolerance level, investment experience or objectives; all of which are unique to you. Before acting on information on this blog, we suggest consulting an independent professional to advise you on the risks of any decision and the extent of any exposure to loss.
-  What Is Net Interest Margin? (Investopedia)
-  Basic Requirements of a Time Deposit (Land Bank of the Philippines)