14 Things You Should Know About Time Deposits in the Philippines

Unlike savings account, you cannot withdraw money from the time deposit. Compared to savings accounts, time deposits earn higher interest rates as compensation to your inability to withdraw the fund. The money to be earned from the account highly depend on the amount of fund deposited and the interest rate imposed on the account.

In other words, the funds are held for a fixed period, and the depositor is allowed to make many withdrawals as per bank policy. Demand deposits and term deposits refer to two different types of deposit accounts available at a bank or similar financial institution, such as a credit union. Demand deposits and term deposits differ in terms of accessibility or liquidity, and in the amount of interest that can be earned on the deposited funds.

Higher deposits and longer maturity are offered higher interest rates. We have listed the top 5-time deposit accounts in the Philippines as of June 24, 2019.

Funds deposited for longer periods command a higher interest rate. Term deposit accounts pay a higher rate of interest than traditional savings accounts.

Some Options on Time Deposits

If they do, the interest rate will be less than the rate paid on time deposits. Money market accounts are also considered demand deposits and are similar to savings accounts. The difference is that the interest rate paid on money market accounts is not fixed and can fluctuate on a daily basis, depending upon changes in short-term interest rates. Like savings accounts, banks do not normally charge fees for money market accounts.

What do you mean by time deposits?

A time deposit is an interest-bearing deposit held by a bank or financial institution for a fixed term whereby the depositor can only withdraw the funds after giving notice.

Time deposits enable the bank to invest the funds in higher-earning financial products. In some countries, including the United States, time deposits are not subject to the banks’ reserve requirements, on the basis that the funds cannot be withdrawn at short notice.

Putting your money in a time deposit account guarantees earned interest or the specified investment return when the account reaches maturity. However, the specified interest rate could dramatically decrease its value once inflation rates get in the picture. As the inflation rate rises, your investment return—because it’s fixed—loses its original perceived value. A time deposit is similar to a savings account but more appropriately described as a type of investment account where you keep your savings for a set amount of time.

In some countries, time deposits are guaranteed by the government or protected by deposit insurance. A minimum initial deposit or a minimum placement is required to open your account. This can range from PHP 1,000 to PHP 100,000, depending on your choice of bank. Usually, higher balance yields higher potential returns from higher interest rates.

Some money market accounts offer check-writing privileges and ATM access, although many do not. Money market accounts normally pay a higher rate of interest than savings accounts, however since the interest rate is not fixed, there may be times when the interest paid on them is lower. Savings accounts are demand deposit accounts that typically have no fees attached. Interest rates on savings accounts are fixed and lower than interest rates available on time deposits. Unlike checking accounts, savings accounts always pay interest, which is usually at a fixed rate set by the bank.

For risk-averse investors, fixed deposits (FDs) are a good choice to park their extra money to earn interest more than that of savings accounts and that too with a guaranteed maturity value. For senior citizens also, FDs have become more lucrative now as the interest earned up to Rs 50,000 in a financial year has become tax-free.

A time deposit, also referred to as term deposit, is an interest-bearing bank account with a fixed term. It allows depositors to grow their money with higher interest rates compared to a regular savings account.

Most people do not regard a fixed deposit account as a good form of investment due to the low interest rates. While higher than the interest rates offered by most savings accounts, fixed deposits still offer below-inflation interest rates.

The Downside of Time Deposits

  • A “demand deposit” allows the depositor to withdraw (or “demand”) their funds at any time, without prior notice to the bank.
  • Typical demand deposits include checking accounts, savings accounts and money market accounts.

Funds a depositor may need to access at any time should be kept in a demand deposit account. Examples of demand deposit accounts include regular checking accounts, savings accounts, or money market accounts.

Pre-terminating your deposit has corresponding fees or penalties. Time deposits have a high demand for discipline when it comes to spending and untimely withdrawals. Term deposits, also known as time deposits, are investment deposits made for a predetermined period, ranging from a few months to several years. The depositor receives a predetermined rate of interest on the term deposit over the specified period.

Savings accounts are usually used to hold funds that will not be needed in the short term. Savings accounts do not offer check-writing privileges, although users can withdraw funds at a branch or ATM. Many banks also offer the capability to transfer funds between savings and checking accounts either online and at ATMs.

What Is a Time Deposit?

Keep in mind, however, that not all checking accounts and savings accounts are demand deposit accounts. Banks offer the flexibility of your funds with variable lock-in periods and account balance.

A customer can earn a slightly higher interest rate with a time deposit account than would be available in a standard savings account or an interest-bearing checking account. The better return is offered because the funds remain locked until the maturity date of the account. The interest paid on a time deposit tends to be higher than on an at-call savings account, but tends to be lower than that of riskier products such as stocks or bonds. Some banks offer market-linked time deposit accounts which offer potentially higher returns while guaranteeing principal.

Demand deposit accounts offer greater liquidity and ease of access as compared to term deposits but pay lower interest rates, and they may also include various fees for handling the account. Depositors can withdraw any or all of the funds in a demand deposit account at any time without penalty or prior notice required. If you’re worried that you might need a large sum of money for a future emergency, then maybe a one-year lock-in is too long for you.

Time deposits differ to at call deposits, such as savings or checking accounts, which can be withdrawn at any time, without any notice or penalty. Deposits that require notice of withdrawal to be given are effectively time deposits, though they do not have a fixed maturity date. With a time deposit, you can access your money only when its term or maturity period ends. A demand deposit account is very common in the United States banking system.

The flexibility of time deposit accounts allows you to be more strategic in your investment. Time deposit rates in the Philippines are higher than interest rates of traditional savings accounts because funds remain on hold for a pre-specified period. During this time, banks can use the funds to re-invest or lend them for higher profits.

A demand deposit is simply money held in an account that you can draw upon on demand. Common forms of demand deposit accounts include most checking and savings accounts. Since the Federal Reserve requires banks to have reserves on hand to cover daily withdrawal requests, it has defined a demand deposit account in its Regulation D. A demand deposit is money that you deposit into a bank account from which you can withdraw on demand, at any time without any advance notice to the bank. Common examples of accounts that are often demand deposit accounts include many checking and savings accounts.

time deposits definition

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Although time deposits are deposit accounts like regular savings and checking accounts, these bank products differ from one another, especially in terms of earning interest. One of the main advantages of a time deposit is higher interest rates and its “risk-free” nature. The terms of most time deposit accounts range from 30 days to up to five years. With a time deposit account, you can expect higher earnings via interest the longer you keep your money in the bank.

Banks do not normally charge fees to maintain a savings account. Time deposit accounts lock your money in the bank for a certain lock-in period, sometimes called tenor, maturity, or terms of placement. During this time, you’re not allowed to withdraw any part of your initial deposit. You can choose to lock your money from 30 days up to 1 year or even more.

A “demand deposit” allows the depositor to withdraw (or “demand”) their funds at any time, without prior notice to the bank. Typical demand deposits include checking accounts, savings accounts and money market accounts.

Time deposit accounts provide banks with the cash flow they need to lend money to other customers. The bank makes a profit by lending the funds held in time deposit accounts for a higher interest rate than the rate it pays on the time deposits. The major disadvantage is that demand deposits may incur fees and may not pay interest. Demand deposits are most suitable for depositors who will need short term access to their funds.

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