How to maximize bank deposits, government bonds

Original article by Dr. Noet E. Ravalo, former Chief Economist of the Bankers Association of the Philippines, published on Philippine Daily Inquirer’s Business section:

If you are asking yourself how to invest your modest family savings, while generating, at the same time, some return without much risk while also keeping liquidity, here’s what you can do.

Maximizing bank deposits

Maximize savings deposits by letting it do the work of your wallet. Put enough funds in it for your recurring family expenses. If you already have other investments, you can arrange their maturity with your savings deposit. If your shortest investment is a three-month placement, try to have three-months worth of family funding needs in your savings deposit as well.

Time deposits

Time deposits give better rates but you must be willing to keep the funds with the bank for three, six, 12 months, sometimes even longer. You can still withdraw the funds before the pre-determined maturity date if you really have to, but if you do this, the interest often reverts to the lower savings deposit rate. In such a case, simply inquire if your bank offers a “special savings account.” That is much better than a time deposit because your funds won’t be tied up for a long time or won’t even be tied up at all.

Government securities

Next to bank deposits, government securities (GS) would be ideal investments for majority of Filipinos. The government has embarked on the Retail Treasury Bond (RTB) program which allows investors to buy a GS-like instrument in units of 5,000 pesos.

What do you get for this investment? A fixed amount (called a coupon) is paid every three months. In actual practice, the actual coupon which individual holders of RTBs get will be slightly lower that the amounts just mentioned. The reason for this is that the public cannot buy RTBs directly from the government.

There is a list of accredited institutions that buy these RTBs from the government and these institutions then sell the RTBs to the public. In principle you can always sell your RTBs in the open market if you need back your funds but you must do so at prevailing market prices. This means you are faced with the possibility of selling your RTB at a price lower than the price at which you had bought them thus generating a loss.

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