3 Reasons Why You Shouldn’t Use Time Deposits
Time deposits are savings accounts that are held by the bank for a fixed term. You cannot withdraw your money for a period of time. If you do withdraw your own money before the deadline, then you’re going to pay for a penalty fee. If that doesn’t sound unfair to you, then you should read more below.
The first reason, why I don’t advice you to put your hard-earned money in time deposits, is simply because you get a small amount in return for a very long time of waiting. The minimum term that you can get your money back with interest in time deposits is 30 days. What make things more confusing is that most banks will tell you that you should put your money longer to get higher interest rates. Well, I’m sure that they’re just doing that so they can get more assets with your own money. (See the 3rd reason)
A great example to back up reason #1 is this..
If you put 50,000 pesos in a time deposit with an interest of 1.750 % (that’s too high and rare of interest nowadays) after 90 days, then your money will only grow 875 pesos (excluding taxes) for almost 3 months of waiting. It didn’t even generated a thousand pesos in return. If you want to earn 1,000 pesos in just a month, then you must have a 100,000 pesos and put it in a time deposit with 1.00 % interest rate or higher. That’s a lot of money to deposit for just a thousand peso return.
The second reason is your earnings are still subject to taxes. If you only earned 100 pesos, it will still be taxed. As far as I know, your earnings in a time deposit is subject for a 20% withholding tax. So you can only get 80 pesos for a hundred peso that you’re time deposit earns. To get that hundred peso(untaxed) earning, you must have more or less 10,000 pesos and find a time deposit with an interest of 1.00% or higher. Unfortunately, most banks that are offer a 1% interest rate requires you to wait for 30 days or more, depending on the amount you can deposit. That’s a long time for you to wait for just an eighty peso return.
Third and the last reason, why I really hate time deposits, is banks use your money to invest it to increase their own assets and just give you a percent of it in return. I’m sure your money isn’t just sitting inside their vault. Maybe they use it to lend money to other people, or invest it on bonds, or maybe it’s now in the stock market. One thing is for sure, it’s still in circulation. The money in your time deposit account may increase it’s value by more than 10% but you’re only getting 1% percent of it. So, are you still putting your money in a time deposit account? I hope you don’t.