What are fixed deposits?
Fixed deposits or time deposits, as they may be called, are interest-bearing bank deposit products that have a fixed term or period, during which they usually cannot be withdrawn, either partially or completely.
Time deposits usually offer higher rates of interest than regular checking and savings accounts (CA/SA) and also offer guaranteed returns which accounts for their popularity with Filipinos even now.
Are time deposits insured by PDIC?
The Philippine Deposit Insurance Corporation provides insurance coverage to the deposits of all banks. Effective June 1, 2009, the maximum deposit insurance coverage is P500,000 per depositor. All deposit accounts by a depositor in a closed bank maintained in the same right and capacity shall be added together. A joint account shall be insured separately from any individually-owned deposit account.
Except for certain exclusions (stipulated in RA 9576), deposits of all commercial banks, savings and mortgage banks, rural banks, private development banks, cooperative banks, savings and loan associations, as well as branches and agencies in the Philippines of foreign banks and all other corporations authorized to perform banking functions in the Philippines, are insured with PDIC.
Foreign currency deposits are also insured by PDIC. Depositors may receive payment in the same currency in which the insured deposit is denominated.
Time deposit investment tips
▪ If you have any surplus funds in your CA/SA and you don’t need them for some time, you can consider parking them in a time deposit.
▪ Deposit tenors range from 30 days to 3 months, 6 months, 1 year, 2 years, 3 years and up to 5 years. Choose a tenor that best fits in with your requirements.
▪ If you have more than P500,000 surplus and want to place these funds in a time deposit while ensuring PDIC protection for them, you can consider splitting your surplus into P500,000 chunks and creating joint deposits in your name with your either of your parents, spouse or children.
▪ If you want to avoid withholding tax on the interest earned on your deposits, place these deposits for a tenor of 5 years or more.
▪ Many banks also offer you the option of placing time deposits in currencies other than the Peso.
Income tax exemption for time deposits
▪ Deposits should have a maturity period of not less than 5 years.
▪ Income tax exemption can only be enjoyed by depositors that are individual citizens or aliens engaged in trade or business in the Philippines.
▪ These deposits should only be issued by banks and not by other entities or individuals.
▪ These should be issued by banks in denominations of P10,000.
▪ If these deposits are terminated before the fifth year, they shall be subjected to the graduated withholding tax rates based on the age of the deposit – five percent (four years to less than five years), 12 percent (three years to less than four years) and 20 percent (less than three years).