Time deposits are among the few investment products you can explore if you’d like to take on the least risk possible. As a deposit product from a bank, there is little chance that your money’s value could fall much, if at all.
Read on to learn all about time deposits, their advantages and disadvantages, and how you can get one.
How does a time deposit work?
A time deposit earns interest at a fixed rate like other types of bank accounts. One major difference is you can’t withdraw any of the money or add more to the deposit during its term.
The term is the length of time your deposit will be locked in. That’s why this product is also called “term deposit” and “fixed deposit.”
You’ll get your money back once the term is over. You can choose to receive your interest on a fixed schedule or when the term ends.
Time deposits are also covered by the Philippine Deposit Insurance Corporation (PDIC). This means that if the bank shuts down, you will get your money back if the deposit account meets certain conditions.
Words to know before opening a time deposit
You may come across technical language when reading up on time deposits. Here are a few words to know:
- Maturity – This is when the term ends and you get back your deposit plus the interest it earned.
- Pre-termination – If you really need to, you can close your time deposit before the term ends. Take note of pre-termination fees, which usually depend on how far into the term the time deposit is.
- Rollover – When your time deposit matures, you can choose to put your money into another time deposit. This is called a rollover and can be done automatically or manually depending on the bank.
What are the advantages and disadvantages of time deposits?
Time deposits can help you grow your money without exposing it to too much risk. However, this growth potential may be limited because of the fixed interest.
Still, there are good reasons to consider adding time deposits to your portfolio. Here’s an overview of the pros and cons to help you decide:
| Advantages | Disadvantages |
|
|
Where can you get a time deposit?
Time deposits are only available through banks. Most banks offer time deposits, each with their own unique features.
Remember to look at the differences to help you find the one that’s right for you. For example, you’re likely to find varying terms, often ranging from 1 month to as long as 7 years.
In general, interest rates increase alongside the term. Banks will try to compensate you more for keeping your money longer.
What can you do once your time deposit matures?
Some banks offer flexibility with what happens to your money after maturity. You might find options to automatically open a new time deposit once your current one matures, so you can keep your money invested without any hassle.
You can explore other investments if you find products that are better suited to your goals. Withdrawing is also an option if you’ve already reached your money goal and need some cash.
Things to remember
- Time deposits offer guaranteed and predictable returns. You can use one to balance more-aggressive investments when you’re diversifying.
- Fixed interest means you won’t see returns that are higher than expected.
- When you put your money in a time deposit, you must accept the fact that you won’t be able to use it for the duration of the term.
- It’s important to have an emergency fund first since it reduces the chances of disruption to your strategy.
What’s next
