Time deposit accounts: earn more on your savings

Your money does not have to sit idle. A time deposit may offer a more predictable return than a regular savings account, with relatively lower risk and without requiring you to do a thing.

If you're looking for a way to put your savings to work, a time deposit might be the right option for you. A time deposit offers a higher interest rate than other savings accounts, but it requires you to leave your money for a set period. This may be a practical way to put idle savings to work. Let’s take a closer look at time deposit accounts.

What is a time deposit account?

A time deposit account rewards you with a higher interest rate for keeping your money locked in with the bank for a fixed term. Banks offer various time deposit terms, ranging from overnight to 364 days for short-term time deposits, and over one year for long-term time deposits. Different banks offer different time deposit rates. But one thing they all have in common is that a time deposit account yields more than regular savings accounts, in exchange for not being able to take out your money for a while.

Can I withdraw my money early

Withdrawing your funds before the agreed period will incur an early withdrawal penalty. This means that even if you need access to some of your cash urgently, withdrawing early might be more costly than letting the whole term pass and getting all your money back then.

If you need to withdraw your money early, Metrobank allows you to do so, but you will receive only 25% of the interest earned if you withdraw during the first half of the term. If you withdraw during the second half of the term, you will receive only 50%. Note that there may also be other fees and taxes involved.

What are some of the benefits of time deposits?

A time deposit account is one of the more accessible sources of passive income in the Philippines, particularly for conservative investors who prioritize capital preservation over high returns.

Time deposits are deposit products that allow your money to grow at a fixed interest rate. A return on investment (ROI) is easier to predict than with regular savings accounts, which don't lock up funds for an agreed period. There are different options in terms of term length, and most importantly, you can't touch your money for the whole term. Time deposits are considered less risky than stocks or bonds because you earn a fixed interest rate as long as you keep the money in the time deposit for the prescribed amount of time.

Who would benefit from having a time deposit account?

You can take advantage of time deposit accounts if you have savings that you do not intend to use for the time being. Before placing funds into a time deposit, it is wise to build an emergency fund first. A time deposit locks your money away for a fixed term, making it unsuitable for funds you may need at short notice. Your emergency fund and your time deposit should be separate allocations. If you are comfortable locking down funds for a fixed term, you can consider putting some of your money into a time deposit. 

If you are worried about locking your money, do not worry! Metrobank offers different terms so you can choose how long your money stays in the time deposit.

Are there any risks to time deposits?

One risk to consider with time deposits is the financial stability of the bank holding your funds. In the unlikely event that a bank closes, you may not recover the full amount you deposited. However, time deposit accounts are covered by the Philippine Deposit Insurance Corporation (PDIC) for up to PHP 1,000,000. 

Should I invest in time deposits?

Time deposits let you take advantage of compound interest through time deposit rollovers. This occurs when a time deposit reaches the end of its term, matures, and its proceeds are automatically placed in a new time deposit.

For instance, you initially choose a 3-month time deposit and decide you want it to roll over. When your time deposit matures, both the principal and the interest it earned are placed in a new time deposit for a new 3-month term. This continues until you decide to stop rolling over your time deposit.

When you let your time deposit roll over, the interest rate is applied to the amount you accumulated during the initial time deposit term. This amount compounds with each time the time deposit rolls over. 

For example, if your initial deposit is PHP 100,000 at 2% p.a. (per annum) with a 3-month term, at the end of the first term you would have earned PHP 500. After deducting 20% tax, you would be left with PHP 400. When it rolls over, the starting amount will be PHP 100,400. At the end of the second term, you would have earned PHP 401.06 (after taxes), which is PHP 1.06 more than you earned in the first term. This compounding will continue until you decide to deactivate your time deposit. The longer you let it roll over, the more interest you earn.

Locking in the right time deposit interest rate from the start may help your compounding returns build on a stronger base.

What is the difference between a savings account and a time deposit account?

The main distinction is access and purpose. A savings account keeps your money liquid—you can deposit and withdraw at any time, making it suitable for everyday expenses and your emergency fund. A time deposit, by contrast, locks your funds for a fixed term in exchange for a higher, fixed interest rate.

A savings account's interest rate is variable and typically adjusted by the bank over time. A time deposit rate is set at the start of the term and remains fixed throughout, making your returns easier to plan for.

If you have funds you do not intend to spend in the near term, a time deposit may make better use of that money than leaving it in a savings account. You can open a Metrobank time deposit account through Metrobank Online and choose a term that fits your timeline.

DISCLAIMER: This article is for general information purposes and does not constitute formal financial advice. Always do further research before making financial decisions and seek professional advice from a certified personal finance counselor.