Time deposit accounts have become a trusted avenue for managing savings and earning passive income, particularly for those who seek a secure and predictable alternative to riskier investments. The appeal of a time deposit account lies in how it offers a fixed interest rate and guaranteed returns—upon agreeing to lock in a specific amount of money for a set period, the account holder is able to earn interest at a predetermined rate in a “touch-and-go” kind of way.
While time deposits are straightforward and reliable compared to other investments, committing money to one still requires careful thought. It’s important to assess your financial needs, goals, and limitations to determine whether to open a time deposit account at all, how much money to set aside, and how long the term should be before the deposit matures.
Here are some questions you can ask yourself to make the best possible decision about the time deposit account you’ll open:
1) What Are My Goals with This Money and the Earned Interest?
Before opening a time deposit account, ask yourself why you are setting aside this money in the first place. Are you saving for a specific milestone, like purchasing a car, funding your child’s education, or preparing for a future financial emergency? Moreover, how long will it be until you’ll actually want to access the money?
Knowing about and setting your goals beforehand will help you determine whether a time deposit is a better option compared to, say for example, a high-yield savings account. Time deposits are ideal for funds you don’t need to access immediately and want to grow steadily over time. Unlike high-risk investments, a time deposit prioritizes security, making it perfect for long-term savers with clear objectives.
To estimate how much interest you can earn, consider using a time deposit calculator. Many traditional and digital banks in the Philippines offer online calculators that allow you to input your deposit amount and term length so that you can project your potential earnings. Find out how much you’ll earn back before committing to a product like a Maya Time Deposit Plus account, which offers three-month, six-month, and twelve-month time deposit options that are great for first-time investors.
2) What Is My Risk Appetite When It Comes to Investing?
Knowledge of your risk tolerance is also critical when it comes to deciding whether to open a time deposit account. If you prefer low-risk investments with guaranteed returns, a time deposit is an excellent choice.
Unlike stocks or mutual funds, which are subject to market fluctuations, a time deposit guarantees predictable earnings. This makes it an attractive option for conservative investors who value stability. However, if you are willing to take on higher risks for potentially greater rewards, perhaps other investment vehicles will better suit your goals.
3) When Will I Need the Money?
Time deposits come with fixed terms, ranging from short durations like three to six months to longer commitments of one year or even five years. With this in mind, ask yourself whether you can afford to have your funds tied up for the chosen term. If so, then go ahead and open a time deposit account.
On the flip side, if you anticipate needing the money for a purchase or financial obligation soon, a shorter term or a more flexible account might be better. Keep in mind that withdrawing your funds before the maturity date often comes with penalties or a reduction in interest earnings, which could undermine your financial goals.
4) Is It Okay If I Don’t Have Access to This Money for a While?
Liquidity is another important factor to consider before you think about opening a time deposit account. Unlike savings accounts, which allow frequent withdrawals, time deposits restrict access to your money until the end of the term. This means that you should only commit money that you can afford to set aside without affecting your financial stability.
In line with this, ensure that you have other funds available for emergencies or unexpected expenses before locking away your savings in a time deposit. This way, you can maximize your returns without jeopardizing your day-to-day liquidity.
5) What Is the Interest Rate of the Account?
The interest rate offered by a time deposit determines how much your money will grow. Rates vary between banks and depend on factors such as the term length and the impact of any promotional offers. Maya’s Time Deposit Plus, a digital banking product that’s gained interest among consumers, offers interest rates of up to 5.75% per annum.
Generally, longer terms yield higher interest rates, but it’s essential to shop around and compare rates from different banks to ensure you’re getting the best deal. Also, don’t forget to consider the compounding frequency, as it can significantly affect your earnings over time.
6) What Are the Additional Fees or Conditions That May Affect My Earnings?
Fees and conditions can also impact how much you actually earn from a time deposit account. For instance, penalties for early withdrawals or requirements to maintain a minimum balance can reduce your returns.
Some banks also impose restrictions that could affect your overall earnings, such as lower rates for smaller deposits or promotional rates with specific conditions. Be sure to review all the terms and fine print carefully, and if there are unclear clauses, don’t hesitate to ask your bank for clarification.
If security and predictable earnings figure into your investing preferences, a time deposit account may indeed be a good option for you. But before you open one, make sure that you have all the details ironed out—and that you’ve chosen a banking provider whose time deposit terms make the most sense for your goals with your money.