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Five Urban Legends about Timed Deposits

When the term time deposits or fixed deposits is used, most people would give this blank stare or worse automatically dismiss the concept. It’s a sad reality because there’s a lot that can be gained from using this type of service offered by banks and financial institutions. We’re here to look at some of the urban legends around time deposits and then debunk them.

What is Time Deposit?

Time deposit is defined as a bank deposit that has a fixed amount of time for maturity. This is issued and kept for a specified term starting from 30 days to up to five years.

Urban Legend # 1 – Time Deposits are not worth Investing

On the contrary, time deposits are good if you want to invest money for a short period of time and with a higher interest rate. Sure banks still offer interest for savings accounts but the interest rates on time deposits are higher.

Urban Legend # 2 – It’s still the same thing as a regular savings deposit

No. The core difference between timed deposit and regular bank deposits is the way its used by bank customers. For bank deposits, there’s a small amount of interest being given to depositors at any given time. It’s fixed and gets applied onto the account every month. The interest rates for time deposit products are bigger but still follows the same principle. The only difference is that it has a shorter time span like say a year or so.

Urban Legend # 3 – There are stiff penalties when you withdraw earlier

There are a lot of people who still think that you’ll be heavily penalized when you withdraw your timed deposit early which is a factor in dissuading them from using this type of deposit. The truth though is that the penalties aren’t that big. Banks will charge a small percentage off the agreed interest rate for “pre-termination”. Aside from this the bank will also put an additional charge for documentary stamp tax. This will not cost an arm and a leg but only a fraction of the amount of money you put into the bank.

Urban Legend # 4 – Once you deposit, you can't take out your money

Not true. Account holders can opt to take out their time deposits at any time within the period they agreed upon. Depending on the bank you started the TD on, you can either take out the entire amount or withdraw just a portion. What’s consistent would be the “pre-termination charges”.

Urban Legend # 5 -  You Need a Big Amount of Money for Time Deposit

The biggest myth that needs to disproved is with regards to the amount of money you need to deposit. Many believe that you need tens of thousands of pesos to make a time deposit. That’s not true. It’s far from the truth. Some banks can accept small deposits ranging from as low as P1000 to as much as P10,000. Still, if you are going to make a time deposit, make it worth your time and effort and put in something substantial like around P5000 and beyond.

Hope that this article helped in easing any worries you have over time deposits. It’s really a great alternative for investments and it’s not that heavy on the wallet either. Plus you know that the money you deposited is in safe hands. To learn more about time deposit or if you want to gain more insight on financial literacy, feel free to visit GoBear.com/ph today!