Why You Should Not Invest in Time Deposit

by Gily Tenorio on September 13, 2011

in Mutual Funds, Time Deposit

Time deposit (TD) or certificate of deposit (CD) is a bank product similar to savings account but the money you put in TD or CD is in a holding period which you cannot withdraw before maturity. However, if you want to get your money prior the maturity date of your TD, you will be charged with a fee.

Many people knows that TD gives higher interest rate than a regular savings account and it is guaranteed by the bank through Philippine Deposit Insurance Corporation (PDIC). However, the question is it wise to invest in time deposit these days?

My answer to this question will be on the premise of how much profit or return it will give you for a particular period, let’s say for example in a month or a year. On the average, a TD has a annual return of 4% on the maximum and it depends on the bank where you put your money. On the other hand, other big banks have lower interest rate on TD.

I think some of you heard the word “inflation“. Inflation is the rate of change of prices of commodities and services in a certain area. Inflation is the reason why almost all prices of the things we buy are constantly increasing every year.

If you are keen observer, you will notice that prices of stuffs we buy are not going down, it is going up every single year. But the sad truth is, many employees have a salary increase slower than inflation.

According to NSO or the National Statistics Office of the Philippines, the current inflation rate for August 2011 is 4.7% nationwide and the year-to-date inflation rate is about 4.8%. What do you notice about this figure?

Here’s a comparison about the interest rate of TD and the inflation rate in the Philippines:

Time Deposit = 4% (maximum interest)

Inflation Rate = 4.8% (year-to-date)

So what can we derive from this data? This information tells us that you actually lose money when you invest in TD. You earn a 4% interest rate on time deposit but you lose 4.8% on inflation for a year. Therefore, it is not wise to invest in time deposit, although it is guaranteed by the bank but you need to pay for the guarantee.

The payment for guarantee is the money itself you put in time deposit. You do not gain or make profit from TD based on the facts I mentioned above.

May be your asking, so where should I put my money? There are lots of ways in which you can invest your money. One of the best ways you can do is to invest in mutual funds.

On the average, an equity mutual fund has a return of more than 20% per year depending of course on the company that manages the fund. If you want to know more about mutual funds, you can visit this link: Mutual Funds in the Philippines

To give you an idea, let’s use FAMI or First Metro Asset Management Inc. as our example. FAMI is a subsidiary of Metrobank group that manages four types of mutual funds in the Philippines. Here’s a quick facts about FAMI mutual funds as of September 12, 2011:

Fund Name Recent NAVPS
1 yr. Return 3 yr. Return 5 yr. Return YTD
SALEF 3.7581 21.18% 31.18% 20.31% 7.73%
SALBF 2.1054 19.83% 31.94% 5.88%
SALFF 1.5495 9.78% 7.75% 11.29% 4.93%
Fund Name NAVPS 30-day Return 60-day Return 90-day Return YTD
SALMF 1.0381 0.14% 0.28% 0.43% 0.95%







What do you notice about the numbers above? Yes, you are right! The rate of return of mutual fund beats inflation rate. Therefore, it is wiser and much better to invest your money in mutual fund than time deposit.

Finally, it all depends on you. Anyhow, it is all your money, not mine. I just want to give you other options in investing your money aside from TD or CD. Make necessary research and studies so you can decide which one will you choose.

Disclaimer: I am not paid to endorse FAMI or anyhow in connection with them but I do have a FAMI mutual fund.

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{ 7 comments… read them below or add one }

iñaki March 27, 2012 at 12:53

TDs can be useful in a sense. Say you have 6 months worth of your monthly salary in the bank.. you can invest half of it in a time deposit to give at least a higher interest rate of an average of 4% versus the average interest rate of 1% in a regular savings acct. You can also use this investment vehicle as you age. ( this is the premise that you’d like to have guaranteed returns for retirement. Since mutual funds can be very volatile, you wouldn’t want your money go down the drain when the economy goes bad ) 😀


learnfe January 28, 2012 at 06:37

Hi, you can check FAMI website at http://www.fami.com.ph


learnfe January 24, 2012 at 13:10

Hi, if you want a long term investing and for kids education plan, you could split your investment into equity fund and fixed-income fund, maybe 50/50. Please understand that this is not a professional advice. it is only my recommendation. I’m investing in fixed-income, balanced, and equity mutual fund.


Anonymous November 26, 2011 at 11:15

based on the table above, SALEF, 5 yr return 20.31%..what do you mean of this? 20.31%/an for 5 yrs or 20.31% return for 5 yrs…


learnfe November 27, 2011 at 12:30

Hi rein1188,

It is the average return per year after five years of investing in Mutual funds. It’s 20.31%/an for 5 yrs.


Jipaulin October 9, 2011 at 21:31

now i know, am enlightened , thanks for your advice, time to switch over.


ace September 19, 2011 at 12:21

wow. you are amazing and i’m ignorant with these things. hehe. can tell me more about mutual funds? pros and cons if it’s okay with you. Thank you for this information!


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