If you’ve learned of the benefits that time deposits offer, you may already see how they could have a place in your portfolio. After all, they can give you predictable moderate growth and are even covered by the Philippine Deposit Insurance Corporation (PDIC).
However, before you head to a bank or banking app to put your money in one, there are a few things that you should learn first to increase your chances of having a better experience. Keep reading to find our useful tips for investing in time deposits.
Tip #1: Make sure you won’t need the money
The nature of time deposits means that you won’t be able to withdraw from the amount until maturity. That is, unless you’re willing to pay extra fees which would eat into your profit. Plus, this can only be done by closing the account and redeeming the entire sum you put in.
So, you should make sure that the money you’ll put into a time deposit is an amount that you won’t be needing any time soon.
This is why having an emergency fund is essential before investing in this or any other product. It gives you a source of money for sudden needs, without having to pull money out of your investments (which would reduce the amount of returns you might get).
Tip #2: Have the full amount ready
Once you open a time deposit, the money you put in stays there until the end of the term. However, you won’t be able to add more to it even if you eventually can afford to.
In a situation like this, you’ll only have 2 options. The first is to open a new time deposit with the extra cash. Of course, you’ll need at least the minimum amount necessary for starting a new account, but if you time it right you’ll have what could be the start of a time deposit laddering strategy.
The second option, and the one that can be quite a bit more stressful, is to close your existing time deposit early and pay all the necessary fees, then start a new time deposit with the combined original and new money.
With both options, keep in mind that there is no guarantee that the interest rate you currently get will be the same as that of the new time deposit. So, you should do your math again to see if either would still be a good option for you.
Tip #3: Compare across different banks
While the basic concept of a time deposit won’t change, you’re likely to find differences in the approach of different banks towards this type of investment. That’s why you should compare the information that you get from the bank’s website or app, or from visiting a branch, to see which product suits you best.
For example, you might find that Bank A offers terms of less than a year, while the minimum for Bank B is 1 year. The interest rate is likely to vary also, even among products from the same bank, usually according to how long you need to keep your money in.
There may be other differences that could be meaningful for you as well. For example, you may discover that a certain bank allows you to automatically reinvest the interest you earned, the money you originally put in (when the term ends), or both.
This would be very convenient if your strategy involves keeping that part of your portfolio invested in a time deposit product.
