Bank Accounts and Credit Securities Flashcards
Emphasizes safety and income preservation, favoring assets with minimal risk. For Filipino investors, bank accounts and credit securities like government bonds and treasury bills represent accessible ways to secure funds and earn predictable returns.
Defensive investing
Description: Allows unrestricted deposits and withdrawals, with funds accessible anytime. This type of bank account generally have lower interest but provide liquidity and security.
Minimum Balance: Typically ranges from PHP 500 to PHP 1,000, depending on the bank.
Interest Rate: Generally, earns around 0.125% to 0.25% annually, subject to a 20% withholding tax in the Philippines.
Purpose: Ideal for emergency funds and initial investments due to low entry requirements and liquidity.
Savings Account
Description: Fixed-term investment where funds are “loaned” to the bank for a specific period, offering higher interest than a savings account.
Minimum Term: Commonly one month, though terms can extend to one year or more.
Minimum Balance: Ranges from PHP 5,000 to PHP 10,000 for regular time deposits.
Interest Rate: Approximately 1% to 1.5% annually, with a 20% withholding tax.
Penalty: Interest is forfeited if the deposit is withdrawn before maturity.
Purpose: Suitable for medium-term financial goals, providing a balance of security and return with limited liquidity.
Time Deposits
Description: A time deposit with a higher interest rate, usually requiring a larger initial deposit and offering flexibility for longer investment horizons.
Minimum Balance: Often PHP 100,000 or more.
Interest Rate: Rates vary from 2% to 3% annually, with a 20% withholding tax.
Flexibility: Some accounts allow withdrawals without penalties, though interest adjustments apply if withdrawn before maturity.
Purpose: An attractive option for investors seeking better returns than standard deposits but wanting lower risk than equities or bonds.
Special Time Deposit or High-Yield Accounts
Description: Cash entrusted to a bank for diversified investments, including treasury bills, stocks, and bonds, tailored to the investor’s preference.
Minimum Investment: Starts at PHP 100,000 for retail investors, with larger placements ranging up to PHP 1 million or more.
Insurance: Trust accounts are not insured by PDIC, as they involve managed investments outside traditional banking.
Purpose: Best for investors who prefer a hands-off approach with portfolio customization for income and capital appreciation potential.
Trust Investments
Factors to Consider When Choosing a Bank Account(5)
- Minimum Balance Requirements
- Interest Rates and Taxes
- Withdrawal Conditions
- Bank Reputation
- Deposit Insurance
[TRUE OR FALSE] The 20% withholding tax is deducted at source, meaning the effective interest received will be lower. For instance, a 1.5% gross interest rate results in a net interest of 1.2% after tax.
True
