Friday, August 15, 2008

SDA & Time Deposit

For several years, we didn’t have a TD account. Our regular savings account in BPI Direct is giving us a competitive rate that’s why I didn’t bother to look for other options thinking that time deposits will have almost the same rates.

After reading some books and doing my research online, I got into my feet and visited ten (yes, you read it right, 10!) reputable banks here in Ortigas. Since I am after fixed-income and short-term investments, I inquired about time deposit and treasury bills. And would you believe that a lot of bank personnels didn’t know their product?! Some were at a lost, and some didn’t even know the rate of withholding tax! You need to ask them questions related to the product and be able to speak the “not so” familiar financial terms. For instance, when inquiring about T-bills then you need to ask for the minimum investment required, prevailing rate, maturity days, discounted price and the net settlement amount, which would mean less withholding tax and other charges. I’ve learned that you need to make sure that you know what you are asking for to get the right answers. Since I did my homework and calculations in Excel, I was able to ask direct questions and got the best deal that I could. But what if I don’t? Then, I would probably walked away and stick to the regular savings since that one didn’t cause any trouble asking questions here and there.

Funny side of the story was during one of my visits in a bank branch along San Miguel Ave., the bank manager took suspicion on me and asked where I came from? I said, “I work here in Ortigas”, then I looked back and asked, “Why?” She said that she’s just checking if I didn’t come from other banks researching on what other banks offer to clients. It appeared to her that I am very certain with what I am looking for. Now that’s what I got for making myself more informed. But nevertheless, no regrets! I didn’t get their services either since I found something better applicable for my short term goal.

So here’s what I found. Investing on SDA (Special Deposit Account) being offered by BSP (Bangko Sentral ng Pilipinas) is good considering that it has better interest rates compared to TD. BPI is offering the lowest minimum investment for SDA giving 4.45% net interest per month. And for TD, considering that no risk involved, ChinaBank offers the best rates among the ten banks I visited especially for 30 days tenure.

I am disclosing this information to help others save and invest their money wisely. Please note that I am not endorsing these banks. In case you found something better, then go ahead and share!

Update:

After 1 month, I've noticed that the TD rates increased, so it will be good to have the 30 day term to avail of the higher interest much sooner (for short term). For SDA, I availed of the automatic roll-over of principal and interest. I checked my account on-line and so far so good! I just have to wait for the letter from the bank to know the exact maturity date for next month and be able to add something to it. :-)

Update 2 (July 2009)

The interest rates particularly on TD dropped tremendously. I’ve mentioned on this post that CBC was offering the best rates way back in Aug 2008. I’ve started there with 4.25% and it went up as high as 5.25% last Dec 2008. But here comes Jan 2009 and the rate dropped to 3.25%. And now, as of this writing, it is just at 2.5%! I need to find time to fix this. I am observing PS Bank currently with 3.0% interest rate, but am not sure if it would be worth the effort to transfer since their rates are also decreasing fast.

Same thing for BPI-SDA, net interest rate dropped. I’ve started with 4.45% net interest, and now it is just giving me 3.36%. My husband recently suggested Citi e-Savings Plus with 4.75% p.a. gross rate (subject to 20% withholding tax). But still quite high isn’t? Not really! The catch is that the interest rate only applies to the deposit in excess of 100k! So after doing the math, I still prefer SDA which gives us full interest for everything we’ve invested on them. Hoping that in times like this, a better deal will really surface. It’s been almost a year and probably, I need to re-shop around the banks again.

27 comments:

  1. i'm excited to see our investments grow, groW, grOW, gROW and GROW in the coming months!

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  2. Hi roszain. How's the computation for the net earnings that you get from an SDA? For example how much will I earn from a 100K SDA in 30 days? Cheers

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  3. hi giovanni, here is how it is computed for SDA. Note that the Gross Rate and Trust Fee may vary each month.

    e.i.
    Gross Rate: 6.1875%
    Net of Withholding Tax: 4.95%
    Trust Fee: 0.50%
    Net Interest Rate: 4.45%
    Days: 30

    Interest = (100,000 x 4.45% x 30) / 360
    = 370.83

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  4. Hi,

    So the minimum investment is 100k for BPI SDA? wahat would be the name of the product? Thanks

    http://mytwentyfivecents.wordpress.com

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  5. Ask BPI for "BSP-SDA" which stands for Bangko Sentral ng Pilipinas - Special Deposit Account

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  6. Hi. Very curious here. You end up with 370 pesos a month? That's actually just 0.4% a month, right? I'm wondering why BPI calls it 4.45% NET interest... Would appreciate a response. More power.

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  7. Hi! The interest is annualized same with time deposit or regular savings interest rates that's why the computation includes dividing by 360.

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  8. Hi ros.. does chinabank offer SDA? what's the interest? I was scouting for banks earlier a nice investment and BPI offered me the SDA for 4.2% only. Does the interest fluctuate monthly? or is it gonna be fixed for like 4.2% for - let's say 5months - if i will not pull out my investment?

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  9. As far as I know, CBC is not offering SDA. Yes, the interest rate fluctuate monthly, it went down last December. If that continues, CBC time deposit will be a very close competitive and might be a good option since TD locks the interest rate and is unlikely to went down based from my observation.

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  10. Hi everyone. Please take note that SDA proceeds are tax-free and are not subject to doc. stamps fees (I think). Let's consider this if we want to compare with time deposit rates.

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  11. I agree Jovanne. I am comparing them on net interest.

    Bad news though... CBC's time deposit rate went down as much as 2%.

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  12. Hello, first of all I would like to thank the owner of this blog, it is very helpful.

    Right now, what is the best and most value-for-your-money instrument offered by banks as of Feb 2009?

    Thanks in advance!

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  13. Hello Lys, thanks for taking time to read this entry.
    I am currently out of the country and still has no clue yet on what is the "better" way to invest. I am not really an expert on that. I only look for fixed-income short term investment like TD & SDA. I'll update this post once I've got more information.

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  14. I invested 100K in BPI SDA recently. This will give me 300 pesos income per month. I have not found any better time deposit offering from any other bank. Check out my blog

    http://www.jovanne1.blogspot.com)

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  15. hi, recently invested in sd-a as well @ 3.4% monthly interest. is this safe as they say?planning to just let the cash lie there for awhile. how are ur investments doing? any alternatives?

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  16. hi manuel, it looks to me that BPI-SDA is stable but like everybody else, the rate is going down but still better than TD.

    since you wouldn't prefer to have all of your savings in 1 nest,you might want to try TD as well. You'll notice that some banks have higher interest rates for shorter tenure like 30 days.

    Ours is in Chinabank, although the rate tremendously went down since we started but still doing okay. Also,I'm looking at PS Bank, but after a month, the rate went down again and it will only give me a difference of 0.25% compared to Chinabank. So for now, I'm just observing and keeping things in place.

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  17. You need to put more money on Citibank to get better result. I think its better to stick with BPI-SDA.

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  18. hi ros, i just opened an sda, thanks for this informative post

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  19. I'm just curious.

    IS it possible to have SDA in foreign currency or just PHP?


    Thanks.

    someone who wanted to save money

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  20. Hi Ros. Just curious of what Jovanne Novalta`s post. Does SDA really is tax-free? I was tolod by BPI that they`ll gonna charge me the trust fee and the tax for my investment. Pls. enlighten me with these. Thanks.

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  21. SDA is not tax-free. The difference of SDA with TD is that in SDA, they call it net interest rate meaning the withholding tax and trust fee are already deducted. However in TD, if they give the interest rate, it is still subject to withholding tax. Below is a sample computation. Note that the rates here are not current.

    e.i.
    Gross Rate: 6.1875%
    Net of Withholding Tax: 4.95%
    Trust Fee: 0.50%
    Net Interest Rate: 4.45%
    Days: 30

    Interest = (100,000 x 4.45% x 30) / 360
    = 370.83

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  22. I have just invested in BPI SDA today, when they introduced to me this product the gross rate is at 4% plus something and the net interest is at 2.85685% at for every minimum investment of 100K. The maturity would only go for one month and it can be renewable so i don't think it would be risky to try it.

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  23. anonymous
    may i ask the principal deposit amount is it safe in bpi-sda even though the rate changes say for example 100k investment

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  24. Hi, I thank you Ros for this info it keeps my worry free, im from baguio and recently invested in Bpi sda...

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  25. what are the risk/s involved??

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  26. @Rommel, thanks for your appreciation of this post :)

    @Anonymous, for SDA, the risk so far is none as long as Bangko Central is alive and kicking :)

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  27. Hi Ros, may I inquire how is the performance of SDA in BPI?

    Thnx

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