Time Deposits: A Safe & Reliable Investment for Starters

Saving your money isn’t enough. Why let it sit when you can let it grow? One of the safest ways to grow your savings is to put them in a time deposit account. It’s like an upgrade you make to get better returns where your money could earn up to 4.125% annually, simply by agreeing to save it for a specific period. 

What is a time deposit account?

It’s a special type of savings account where you agree to keep your money in the bank for a fixed period in exchange for higher interest rates. The concept is straightforward: the longer you commit to keeping your money with the bank, the higher the interest rate you can earn.

Terms typically range from 30 days to five years, with interest rates generally increasing with longer terms. This makes time deposits particularly attractive for those who have savings they won’t need to touch for a while.

Key benefits of time deposit

• Guaranteed returns — Time deposits offer several compelling advantages that make them an attractive option for careful savers. First and foremost is the guaranteed higher return compared to regular savings accounts. While your money in a savings account might earn less than 1% annually, time deposits typically offer rates between 4.125% to 4.5%, depending on the term and amount you invest. Note that your earnings will be subject to 20% withholding tax.
• Peace of mind — Security is another major benefit that sets time deposits apart. Your investment is protected by the Philippine Deposit Insurance Corporation (PDIC) up to PHP 1,000,000 per depositor per bank, offering the same level of security as regular savings accounts. Moreover, your interest rate is locked in for the entire term, protecting you from any rate decreases during your investment period.
• Goal-based saving made easy — Time deposits also help enforce saving discipline. Since your money is committed for a specific period, with penalties for early withdrawal, you’re less likely to spend it on impulse purchases. This forced saving can be particularly helpful for those working toward specific financial goals, whether it’s saving for a down payment, planning for education, or building long-term wealth.

How to start a time deposit account

Opening a time deposit is a lot like starting a savings account. The only difference may be that it can even be more convenient. For example, if you have a Metrobank savings account, you can start an Online Time Deposit account through Metrobank Online or the Metrobank App. Just create an account, link to your savings account, and select “Open Time Deposit.” From here, you can choose the placement amount (with a minimum of PHP 10,000, and the term, which is between 1 to 12 months).

How does a time deposit work?

When you place money in a time deposit, understanding how and when you’ll earn interest is crucial. Now that you know how to invest in a time deposit, let’s break down the mechanics. 

• Interest calculation and payout options — Interest on time deposits starts accruing from the day you place your money. For example, if you invest PHP 100,000 for one year at 4.25%, you’ll earn PHP 4,250 in interest before taxes. 
  Banks typically offer two main options for receiving this interest. You can have it credited to a separate savings account periodically (monthly or quarterly), or you can wait and receive it all at maturity. If you don’t need the interest for regular expenses, leaving it until maturity often simplifies your financial tracking.
• The rollover process — When your time deposit matures, you have several options. The most common is automatic rollover, where the bank reinvests your money for the same term at the current interest rate. For instance, if your one-year PHP 100,000 time deposit matures, it would automatically be renewed for another year, but possibly at a different rate depending on current market conditions. You can also choose to roll over just the principal and withdraw the interest, or roll over both principal and interest for compound growth.
  It’s important to mark your maturity date and make an active decision rather than defaulting to automatic rollover, as interest rates might have changed since your initial placement.
• Early withdrawal considerations — While time deposits are designed to be kept until maturity, life sometimes has other plans. Early withdrawal usually comes with penalties that can significantly impact your returns. These penalties vary by bank but typically involve reduced accrued interest and possible fees. 
  For example, for Metrobank’s Online Time Deposit, you may only be entitled to 75% of your accrued interest if you pre-terminate or withdraw your deposit in the first half of the term, and 50% if you pre-terminate or withdraw in the second half of the term.

Getting started

Before you open your first time deposit, it’s a good idea to make sure that you have enough emergency savings in a regular account. Remember as well that time deposits are just one part of a well-rounded financial strategy. They excel at providing safe, guaranteed returns but shouldn’t be your only investment vehicle. Consider combining them with other investments based on your goals, risk tolerance, and time horizon. The key is to find the right balance that works for your unique financial situation.

Want to learn more about investing? Check out Metrobank’s wide array of investment options with professionally managed funds and access to global markets. You can also go to FirstMetroSec to access investment options including pooled funds, bonds, and stocks.

Read more about investing, credit management, insurance, and saving tips for young adults to retirees at lifebanking.ph.

Disclaimer: This article is for informational purposes only and does not constitute financial advice. Financial decisions should be based on your own research and personal circumstances. Consider consulting with a qualified professional before making any financial decisions.