BPI Advance Savings Account - Why It Can't Save Time Deposits From Extinction

There’s evidence to suggest that more and more people are becoming investment-savvy.

The Bank of the Philippine Islands (BPI) experienced a 5% dip in deposits due to a decline in time deposits. This has been attributed by the bank to a shift to other investment instruments with better yields.

I believe that with the availability of information in the internet, more and more Filipinos have figured out that time deposits are for losers. 

The comparatively low interest rates of time deposits are not enough to justify losing a depositors ability to use his money for a long time.

The rates offered by time deposits are so low that they would not protect your money from losing its value due to inflation. And yet you lose liquidity for a long period of time. It’s no wonder people will start to realize how lousy time deposits really are.

Enter BPI Advance

BPI, for its part, has taken the extraordinary step of offering a new deposit product they call BPI Advance. It’s meant to function similar to a time deposit with interest rates similar to it but with added benefits. 
  • Interests are paid in advance from the beginning of the month on a monthly basis.
  • Withdrawal is free every first day of the month. Corresponding interest adjustments and documentary stamp tax recovery applies for withdrawals.
BPI wants to market this product to those who live on interest. But with the really low interest rates of at most 2.375% per annum, an individual can only do so with a very large sum of money to deposit.

Many people think this proposition is a joke for the following reasons:
  1. The interest rate is lower than the inflation rate.
  2. To be able to live on interest, you need millions of pesos.
  3. If you have that much money, there are better alternatives.

Money Kept in Savings Deposits

Still, there are people with so much money in banks who may prefer the relatively better interest rate of BPI Advance than ordinary savings or current accounts. 

If you’re one of those people, I believe you’re making a mistake keeping your money in savings instead of either bonds or stocks where yields are better. Even a risk-averse individual can find money market funds (very low risk) with three times the yield of savings deposit.

A very popular and proven rule of thumb which we should all remember is this:
Keep only at most six months’ worth of expenses in your savings deposit as emergency fund and nothing more. 
The rest of your money should be in investment instruments that earn you at least more than the inflation rate. 

There are a variety of these investment instruments you can learn about by reading this blog. 

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