The Disadvantages of Time Deposit Investments
A time deposit investment is a deposit that offers higher interest rates, but in return requires you to keep the deposit untouched for a fixed period of time. It must remain untouched until the deposit reaches maturity, upon which interest will be paid to the depositor.
Philippine banks normally offers its clients time deposits with varying periods of maturity. The Bank of the Philippine Islands (BPI) for example allows 91 days to 364 days time deposit with varying interest rates. Banco de Oro (BDO) offers a rather shorter time deposit maturity of 30, 60, 90, 180, 360 Days with a minimum initial deposit of PHP1,000.
While the interest is enticing enough for people to use time deposits as a means of low-risk, medium return investments, this type of deposit account may not be right for everyone. Here we look into the disadvantages of time deposit investments
Non-liquidity of funds
A fund is liquid if you can withdraw the money anytime without incurring any considerable charges or penalties. Savings account holders do not incur charges if they withdraw money from their accounts. For time deposit account, any withdrawal before the maturity date means paying the corresponding penalty fee or forfeiting the interest amount altogether.
Guaranteed but Low Investment Return Type of Investment
When you put your money in a time deposit account, you are assured of interest or the stated
investment return when it reaches maturity. Say, you put your money in a 5 year time deposit account, the inflation could seriously affect how much you earn from it. If you are earning 2.5% from your investment, it could dramatically lose its value as inflation rate rises. If the current inflation is at 2%, your money may have only earned a small 0.5% in real interest.
Because of the time to maturity imposed on time deposits, remember to only deposit the money you won’t need in the immediate future so as to avoid the need to withdraw these funds, and any penalty fees that come with early withdrawal.
Did those advantages convince you? You can easily apply for a time deposit on our website!