This morning I decided to go banking. First stop was China Bank. I decided to open a Time Deposit Account with them since i did not like the thought of my money being dormant. Of course, I had to put aside some of it (in another account), because I need at least few thousands liquid. I was not at all interested about the interest rates, taxes, and all that. For me, I just wanted to at least reduce the effects of inflation on my hard earned money. When I went home, I decided to do some computations. I was actually under the impression that the way TD works is that whatever amount you put in is just multiplied by the interest rate, and that's it (e.g. 10 000 X 4% interest rate [0.04]). That was when I became so excited. I was exhilarated! Imagine, being able to pay my rent out of the interest earned if I will just save more money!

But alas, this is not the case. After being very excited, my (still) rational side decided to do some research. For the benefit of those people who do not know how to compute the interest rate on Time Deposits, here's the formula:

Amount X Interest Rate X Tenure X 0.8 / 360

**Tenure is the period until maturity (eg. 30 days, 60 days, or 90 days)

**0.8 is a constant value (which is the 20% withholding tax)

**You divide the total by 360 since interest rate is annualized (or at least I think so)

Here is an some example:

Amount - 10 000 Pesos

Interest rate - 4%

Tenure - 30 days

10 000 x 0.04 x 30 x 0.8 / 360 = 26 pesos per month

=(

Another thing that ticked me off was the realization that bank employees sometimes do not know anything about their products. I asked the woman who helped me in opening up my TD account what the difference is between the 30 day and 60 day TDs (since I noticed that both have the same interest rates), and she told me that there's none except for the latter is longer (duh!). Anyway, it occurred to me already (considering the formula above) that the longer the tenure, the higher the interest earned. Talk about being stupid.

Anyway, at this rate, there is no avoiding inflation. The only thing that can beat inflation rates are the interest rates on mutual fund (or so I believe). But mutual funds usually require longer tenures which makes it unfeasible.

## No comments:

## Post a Comment