A time deposit or TD is a type of investment account, similar to a savings account, where you keep your savings for a set amount of time without withdrawing it. It has higher interest rates than a regular savings account and is considered “risk-free.” Expect higher earnings via interest the longer you keep your time deposit in the bank.
Most financial institutions offer time deposit accounts that you must not touch for a minimum of 30 days or a maximum of 5 years and 1 day. You can request for a longer tenure if necessary.
- Deposit amount
The amount you need to open a time deposit account depends on which bank you open your account in. Some banks will require a minimum of ₱1,000 to start while others will go as high as ₱50,000 for the minimum amount. There are also banks who accept other currencies such as US Dollar, Japanese Yen, and the Euro.
You will need to pay a documentary stamp tax upon pre-termination or maturity of your deposit and withholding tax on your interest income.
- Early withdrawal fee
The bank will charge a percentage off your interest rate as a penalty for early withdrawal or pre-termination. Also, the bank will charge you the documentary stamp tax.
If the term is less than or equal to 1 year, interest income is:
(Interest rate) x
If the term is more than 1 year, interest income is:
(Interest rate) x
It is ₱1 for every ₱200 of your time deposit amount or a fraction thereof. This tax is charged upon maturity or pre-termination of your account. In most cases, the banks pay this tax for you if you do not make any pre-termination on your time deposit.
It is 20% for Philippine pesos and 7.5% for foreign currencies. Hence, when you receive your interest income from the bank, the withholding tax is already deducted from it. You will only receive 80% or 92.5% of your interest income, depending on the currency.
You will get a penalty for early withdrawal. In other words, you will get less than the interest income you should be getting when the time deposit is allowed to mature. You will also have to pay the documentary stamp tax.
If pre-termination is within the first half of the quoted term, interest income will only be 75% of what you are supposed to be getting if you allow your time deposit to mature. If pre-termination is during the second half of the quoted term, interest income will only be 50%.
You can provide instructions to your bank when you make the deposit or any time before the term is up regarding what you want to do once your time deposit account reaches its maturity. You can tell them to:
- Rollover your deposit and the interest you accrued
- Withdraw your deposit and the interest you accrued
- Rollover your deposit but withdraw the interest you accrued
If you don’t tell the bank what you want to do with your money once your account matures, the bank will automatically renew your fixed deposit for a similar period at the current market rate for a deposit of that amount and time period.
PDIC is the Philippine Deposit Insurance Corporation. It insures your savings account up to a maximum of ₱500,000.