What will be discussed:
Time deposits are bank deposit products which earn interest over a fixed term or period, but cannot be withdrawn for a certain duration. Once the duration is through, it can be taken out or deposited (again) for another term (rolled over).
You can roll over with interests capitalized (highly recommended to build up your capital) or withdraw the interests and roll over the capital.
Let’s give an easy example with simple figures. Let say you place 100, 000 PHP at 5% interest over 1 year.
It means you deposit 100,000 PHP on this Time Deposit Account, you cannot withdraw it for 1 year, but after 1 year there is 105,000 PHP on your account. 100,000 PHP (initial deposit) + 5,000 PHP (interest earned) = 105,000 PHP.
At this time you can decide to:
· Withdraw the 105,000 PHP, you have already earned 5,000 PHP
· Let the 105,000 PHP on the account to earn again 5% of the 105,000 PHP the following year
· Withdraw the interest of 5,000 PHP and leave again the initial 100,000 PHP on the account to earn again 5% of the 100,000 PHP the following year
Time deposits also earn higher interest rates compared to savings and checking accounts, depending on the amount placed and term. The higher they are, the higher are interest rates
Although this might sound good to most depositors, there are also Advantages and Disadvantages in having a Time Deposit account. Here are some issues you need to know about Time Deposits:
Term deposits typically have higher interest rates because the deposits are held for a pre-specified length of time, giving the banks or financial institution access to the deposited funds to re-invest/re-lend it for higher returns before the term deposit matures.
Unlike other accounts like Savings Accounts, Time deposits let you know beforehand how much you’re going to earn in interests and when it’s going to happen.
The minimum term is typically 30 days, with 60, 90, 180, and 360 days depending on the terms of the financial institution or banks are also available. These days, some banks have also introduced longer-term time deposits, particularly two, three, five, and six years.
· High interest rates for your deposit for the duration of the term.
· You're assured of return on your investment.
· Compared to other types of investments (e.g. stocks, property), Time deposit is easy to set up and not too complicated to learn about.
· Time deposits aren't as risky as stocks or property. In fact, time deposits are one of the safest types of investments.
· You decide how long you keep your money deposited.
· You have a range of terms to choose from, starting at one-month and up to five or even seven years investments.
· You can choose the frequency of your interest payments depending on how long you keep the deposit.
· You can have the interest paid out by check or straight to your bank account, or have the funds reinvested for accumulated interest.
· Having the money locked away for a set duration lets you save easily.Since the interest rate is fixed for the duration of the term, you will not take risk on any cash rate decrease.
Disadvantages of Time Deposits
· You can't touch your funds within the term's duration. If you plan to get a time deposit, you have to be very sure that you can afford to have your savings locked away until the maturity date.
· In some cases banks and financial institutions may allow early withdrawal, however you'll have to deal with penalty charges to get your money.
· If you really must get your money out (in the event of an emergency), you can cancel the term deposit but you'll have to deal with release charges, whose cost would depend on how much time the term had left.
· Deciding on a more frequent interest payment could result in a lower rate.
· Since the interest rate is fixed for the duration of the term, you wouldn't be able to take advantage of any cash rate increases.
· Time Deposits can also be in other currency, depending on what bank or financial institution you have it subscribed with. Usually, bigger banks and international banks have more options when it comes to Time Deposit currencies.
· Unlike savings or checking accounts, you would not need to have a passbook or ATM card for your time deposit. Instead, you will be given a certificate of time deposit, which usually shows the interest rate, term, and maturity date.
· When the term has ended, you will be given a choice of either withdraw the amount, or continue another term for same, shorter, or longer period of time to accumulate the same or more interest.
· Like all bank deposits, time deposits are also in clause of insurance up to 500,000 PHP per account name by the Philippine Deposit Insurance Corporation (PDIC).
Given these information, we can say that there are upsides and downsides of going thru time deposit with banks or financial institutions. The most important thing is that you are fully aware and educated about the steps that you are going to take and that you know the consequences of your actions. As stated above, time deposits are one of the safest products you can get from a bank when it comes to earning with your money, but also as mentioned, if you are not sure this is the right step for you, think twice, or go through a more applicable plan for you.
For example if you have savings that you do not intend to spend and saving it for a car for instance, it would be a good choice to put it on a time deposit account so you can also make sure, that it is protected even from yourself (basing on experiences of compulsive decisions) and make the money earn interest while you’re waiting for your savings to amount up to your dream car. And plus, if you always roll over your money to another term of time deposit, you are earning extra from interest to save up more.
Is there anything we missed?