Tuesday, March 20, 2007
Investment Alternatives To Time Deposits
In case you haven't notice yet. Time deposit rates in banks are dropping like flies for the past months into all time lows. Top commercial banks are only offering a rate of 1% to 3.75% depending of the placement amount per anum for short term deposits, and that rate is still gross of 20% withholding tax. Not to mention that savings accounts will no longer offer the standard rate of 1% per anum to 0.50%, Pretty dismal rates if you depend on money earned from interest rates for your monthly expenses. But there are alternative investment vehicles where one can diversify into.
One popular investment vehicles is the Unit Investment Trust Funds or UITFs, which offers higher yields compared to a traditional time deposit. UITFs invest into bonds, fixed income instruments, government securities and the stock market and is offered by banks and usually has a holding period of 30 days or more. One main difference between UITFs and time deposits is with UITFs you can actually loose money and it is not insured by the PDIC, meaning that when the bank offering the UITFs goes under, there is no P250,000.00 covered insurance.
Investing in stocks is also a great alternative to time deposits. Investing in blue chips stocks ensure gains as well as dividends issued by the company. But before investing, it is wise to actually take time and study how the stock market works. It usually takes more time and effort in conducting research into what stocks to invest unlike placing it in time deposits which only requires you to deposit your money and the interest will come rolling. But the gains associated with the stock market cannot be overlooked. Many investors have become millionaires from it but a lot has also lost money if not financial ruin from stock trading. So it is wise not to put all your eggs in one basket. For example you have 1.5 million pesos, place 500k each in time deposit, UITFs and stock trading. Never gamble all you money in one investment vehicle. Learn to diversify so you can minimize you loss in case something unthinkable will happen.