Here again is that perennial question, “I have extra cash. Where should I put my money?”
We’ve previously posted a lot of articles like this before, but if you’re looking for another article that will answer this question, don’t worry. We’ll give you another one that provides a comparative pros and cons analysis of various investment products.
Most Filipino investors nowadays seem to be enamored with stocks as an investment option. This is not bad per se, but intelligent investors understand that a critical element of their overall investing strategy is portfolio diversification.
Diversification simply means investing in a variety of asset classes in order to reduce portfolio risk. Because asset classes have imperfectly correlated relationships, both in risk and return, investors gets to minimize their losses when they are diversified as compared to when they are not diversified.
What alternatives do you have if you have extra money which you won’t need in the near future and which you want to place in a safe investment?
Well, the easiest choice is to put it in a bank’s savings account. A savings account is highly liquid — meaning you can withdraw your money anytime you want. It is also safe because deposits up to P250,000 are covered by the Philippine Deposit Insurance Corporation.
If you want higher interest rate than a savings account, you may opt for a time deposit. Here you park your money for a certain period of time and, in return, the bank offers you an interest rate relatively higher than what your regular savings account will get. Like a savings account, time deposits are covered by the PDIC up to P250,000 per depositor.
Now, what if you still want a higher interest rate but are not willing to take additional risk? That’s when you can try investing in Special Deposit Accounts or SDAs.
