March 6, 2012
Are time deposits still relevant?
Dear Mrs. Colayco:
Do you recommend putting money on time deposit? My sister is a freelance entrepreneur/graphic artist and she currently has all of her savings on time deposit, and it earns a lot so I'm planning to do the same. Are there any other disadvantages, apart from not being able to touch my money for a long period of time?
Mrs. Colayco replies:
A time deposit is one investment option. The term is usually fixed for several months or year/s and the minimum amount is dependent on your bank. While the amount generally cannot be withdrawn until due date, most instruments allow for early termination with penalty. Usually, the penalty is foregoing any interest earned.
Normally, it is a bank that accepts the time deposit. You are actually lending to the bank. When you lend to somebody, you want to make sure that you will be repaid. Therefore, the safety of your deposit is dependent on the bank that you choose. It is important to choose a reputable bank with a good operating history. Or if you want to be completely safe, deposit only a maximum of Php500,000 because this is covered by the Philippine Deposit Insurance Corporation or PDIC. Be sure you keep your documents carefully.
The type of investment you should choose is dependent on your personal financial situation. You should make your Personal Statement of Assets and Liabilities (similar to the SALN that everybody is now talking about because of the Impeachment Trial going on). When you have your SAL, you can have a better understanding of your objectives for your investment. Some questions to be answered are: How old are you? How much do you have now? What are your objectives for your investment? What period of time do you think you have before you need the money?
You can compute all kinds of possibilities with these questions using our "Know How Much to Save to Become Wealthy" system at wwww.colaycofoundation.com. For example, you could have a specific objective to save for your own home. Another objective is to save for your retirement. Aside from whatever retirement you might get by being a member of Social Security and what your Employer might provide, you should always prepare for your retirement with a specific plan.
A time deposit definitely earns higher than a savings deposit because a savings deposit hardly earns anything. If you are young, you can keep a part of your savings in time deposit but you must learn about the other options that can give you a better return than a time deposit. If you are senior and retired, it is best to keep you savings in a safe investment and a time deposit from a reputable bank is usually safe.
One formula you should remember is: The higher the interest, the higher the risk and vice versa.
You can learn about all these options through our publications and our seminars. You can learn how to get these from our website, www.colaycofoundation.com.
Mary Anne B. Colayco is a happy wife, fulfilled mother of three beautiful ladies, helpful mother-in-law of two handsome gentlemen, doting grandmother of two adorable girls and the diligent President of Colayco Foundation for Education (CFE). For over 40 years, Mabsi, short for MAB-C, was in executive-level finance-related positions, as well as general management positions in Ayala Corporation subsidiaries (then, Pure Foods and Globe Telecom among others) and also served as a Commissioner of the Energy Regulatory Commission.
She joins her husband, author-entrepreneur Francisco J. Colayco in their common advocacy of teaching financial literacy to income-earning Filipinos. Herword.com draws from Mabsis wealth of life experiences in giving advice on personal money management.
If you have any questions about personal finance, e-mail firstname.lastname@example.org.