Where to put your money (Part 1)

LIVING continents away from home is not quite easy especially if you have a family left behind in your homestead. Despite the overpowering emotion to be with them, you still deem it advantageous to be working abroad to earn more and send good tidings back home. Here are a few tips to remind you of where to put your money in order to assure that bright future you've been thinking of while you work your way to success.

Savings Account. This is the basic deposit account any working man should have in the bank. Equipped with a passbook, you can verify transactions made under your account. A deposit is considered a credit to your account while a withdrawal is considered a debit from your account. Another form of savings account is an ATM (automated teller machine) account, which normally earns the same interest like the ordinary savings account but without a passbook. Instead, you are given an ATM card allowing you to perform deposits and withdrawals in the ATM machine anytime within the day as long as the servicing bank is not off-line.

Tip: As the interest pegged for a savings account deposit is quite low, it is wise to use this account only as an expense account to keep track of your incoming and outgoing funds. Opening a savings account is also the easiest way to send remittances from abroad. However, you should determine how much your household needs every month so that whatever is in excess of your budget should be deposited to higher-yielding deposit instruments.

Current Account. Consider this an account to be opened for the purpose of making payments to persons or business entities. A checking or current account entitles the depositor to order a checkbook, the checks of which can be used for issuance to other parties. Any amount issued using the check is drawn against the balance of the current account. It takes an amount of patience and know-how to manage the cash flow of this type of account as it does not come with a passbook. It is your duty as a depositor to monitor your check issuances. Any amount issued more than the balance of your current account will be considered an overdraft. Overdrafts are imposed penalties or charges by the bank depending on the amount and the number of days it was left unsettled.

Tip: Unless banks offer a special promotion, a checking account does not normally earn interest. Therefore, it is best to deposit funds here only when you are to make check payments to other individuals or companies. If you encounter overdrafts, make sure to deposit funds into your current account as soon as possible in order to avoid surcharges. Banks also offer automatic transfer arrangements wherein they automatically transfer funds from your savings account to your current account by the time check issuances are registered in your current account. However, a higher maintaining balance is required for this type of account because of the combined services of both savings and current accounts that provide ease of monitoring funds to the depositor.

Time Deposit. This is a special savings account held by a depositor in the bank for a fixed term and guaranteed by a certain rate of interest (higher than savings account) covering only your chosen period of time or term (e.g., 30 days, 60 days, 90 days, 360 days.) Time deposit in a bank requires a bigger initial placement amount in contrast to a savings account for the primary reason that a time deposit earns a higher interest rate. The principal and interest amount can be withdrawn only during the maturity period of the time deposit. Any withdrawals made before the maturity date is considered a pre-termination, thus, most banks impose a penalty for any pre-terminated transaction. The penalty rate reduces the interest income earned by your time deposit in contrast to the whole interest income you get when the full maturity of the deposit has been reached.

Tip: Be sure that whatever amount you invest in time deposit will, more or less, not be needed within your specified term. Whatever you place in time deposit should be your excess funds only so that the term of your placement will not be disrupted by frequent withdrawals. If you want some liquidity from your time deposit, you can instruct the trader of your bank to automatically credit the interest income of your time deposit placement to your savings account every maturity date while the principal amount can be rolled-over for another term. Otherwise, you can opt to roll-over the whole principal amount including the interest and this will become your new and bigger principal base.*

(Part 2 in next issue: Common Trust Funds, Bonds, Stocks)

Renzi is a graduate of Economics with a Masters Degree in Business Administration from the University of St. La Salle. While working full-time in the Trust & Investments Division of one of the 10 largest banks in the Philippines, she dabbles into writing and does mountain biking as her weekend hobby. You may email the author at renzijuarez@philippinestoday.net

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