A time deposit is a type of bank account similar to a savings account. You can lock your money in the bank for both safe keeping and passive earning. A minimum deposit is locked in for a specific amount of time called maturity. It yields an interest rate that’s much higher than a savings account because you’re giving the bank more time to utilize your investment as their own. Depositing more money in longer maturity equals higher interest. You can compare interest rates, minimum deposits, and maturity with GoBear. The best bank for your investment is one that offers a high-interest rate for less deposit in shorter tenor. It’s good to pick a bank with flexible options for account balances that earn interest.
Time deposit accounts are ideal for people who are looking to fund significant investment in the future. If you’re still in the process of saving for a house or a car, a time deposit can help you with that. It earns you a little extra and also protects your money from more high-risk investments and maybe even from possible impulsive expenses.
If you’re planning to open one, then you should know how to maintain them. It may be to maximize your passive income or work with a considerable sum of your savings locked in. Here are some tips to make the best out of a time deposit!
✔ Choose the right terms for you
In time deposit accounts, waiting for maturity is crucial to receiving the income you expect. Withdrawing your deposit before it matures comes with early termination or withdrawal fees that will eat through your interest and even part of your principal.
The high-interest rate for an extended maturity period or a big deposit is not worth it if you withdraw early for emergencies. Pick a maturity period that you’re comfortable with. Decide on how much you’ll deposit. Lower amounts may earn interests that are comparable to a more liquid savings account. Deposits should also be not too much that future expenses will be too tight, with no emergency funds.
✔ Create a strict budget
If you’re going to live without a huge part of your savings, then you should plan ahead of possible expenses. Spend more frugally to save some money for emergencies. Having a separate emergency fund than what’s in your time deposit minimizes the risk of premature withdrawals and their consequent fees. Some banks need a 7-day to a 31-day notice when you decide to withdraw early or rollover automatically. The length of notice could be a problem if you’re trying to find emergency funds in your time deposit.
You can put your extra funds in a high-interest savings account, so it still earns you passive income when not in use. If this savings account is in the same bank as your time deposit account, you can automatically deposit your interest earnings in this account. Depositing will allow for the rollover of the principal to another term.
✔ Track your money
Set reminders for when your money matures. The bank would usually contact you for notification, but the deposit automatically rolls over to the same maturity period. Remember when your investment matures so you can plan whether you want to withdraw some of it or update the maturity for a higher interest rate. You don’t want your cash accidentally locked into another term when you’re not up to it!
✔ Strategize with multiple time deposits
If you have a lot of money to invest, it would be smart to spread your assets to different banks. Interest rates may be different from bank to bank, but this would allow you to secure your investment in case one bank goes belly-up. Sure, the Philippine Deposit Insurance Corporation (PDIC) insures clients’ money for up to ₱500,000, but it still pays to be safe.
Also, consider having your multiple time deposits mature in staggering terms. It may be confusing to track, but this allows you to get your money back at different times. People living off their savings can use this as a lucrative strategy. It would almost feel like getting a paycheck through your investments’ interests.
✔ Focus on a one-time deposit account
If you have money to open a one-time deposit account, make sure to focus on growing the interest of that investment. Either leave the money in for a longer time or increase your savings gradually.
✔ Maximize your balance
When you leave your deposit in for multiple maturity periods, interest is applied to the interested principal. For example, you might want to choose a monthly maturity with 3.5% per annum for 12 months. This has a lower rate than the 3.9% for a one-year maturity. However, if you account for the compounding for a ₱100,000 deposit, you’ll earn ₱103,556.70 (rounded up)! That’s 3.56% interest instead of 3.50%, and you’re savings seem to be more liquid such that you can withdraw anything monthly when you need to!
Another smart trick is to deposit additional savings into your account regularly. We’re talking future value of an annuity. Say you keep saving ₱10,000 every month in addition to your principal ₱100,000! Same maturity of one month, with 3.5% per annum interest rate. At the end of the year, your ₱220,000 total deposit will earn you ₱23,887.68. You’ll receive 10.86% of your deposits! Of course, there’s still the 20% withholding tax that deductible from these calculations.
✘ DON’T withdraw early
Following our tips above should prevent you from needing to do this.
✘ DON’T settle for convenience with your current bank.
Your current bank may not be the best one for time deposits. Shop around for the best interest rates. This way, you won’t regret your time deposit options when you see another bank that offers better benefits.
✘ DON’T automatically rollover your deposit
This is for when you find constant tracking of your deposit confusing. You can ask your bank to deposit your total balance or just the paid interest in a separate savings account or a non-earning withholding account. Manually renewing your investment buys you more time to update your budget according to your present situation.
You’re smart to consider investing your valued savings in a time deposit. Low risk with higher returns than a savings account is a great motivation. Make your money work for you with these tips for a safer and more productive banking experience. It’s crucial to pick the best bank for your time deposit account/s. Let GoBear help you with that!