Suppose you have P500,000 in extra cash that you want to invest. Where will you place it? The choices are many — bank deposits, mutual funds, stocks, government and corporate bonds, etc. — but choosing which among them is tricky. Which will give the best and least returns? Which is the least and most risky? Deciding will not be easy. But you must be guided by a rule of thumb, that your return must be higher than the inflation rate to offset any erosion in the value of your money. Another option to consider is special deposit account or SDA.
Deposits are your safest bets. They are insured up to P250,000 — and up to P500,000 if initiatives by Congress to raise the maximum deposit insurance coverage prove successful.
However, they offer the lowest return — currently less than 1% per annum — which make them unsatisfactory if you are looking for something higher. The central bank expects inflation to average 5.5% this year.
Fortunately, the Bangko Sentral ng Pilipinas (BSP) opened its SDA to government financial and trust institutions. If you are interested, you may go to a bank that offers the SDA.
The BSP introduced the SDA in 2006 to mop up excess liquidity in the financial system — and counter inflation — without raising its overnight borrowing and lending rates.
You must have at least P100,000, however, before you can place your cash in the SDA. “At present, only the 14-day and 30-day windows are available. This facility is deemed very lucrative because it offers relatively high interest rates and are considered very safe, akin to government securities, because the counter-party is the central bank itself,” said Josefino P. Cerin, Land Bank of the Philippines investment and trading department head.
The SDA offers interest pegged on the central bank’s overnight borrowing rate. As of Dec. 23 last year, the 14-day SDA offered 5.265%, and the 30-day SDA, 5.875%. Interest income, however, is subject to a 20% withholding tax.
The SDA is a secure investment since it is backed by the BSP and offers better rates compared to deposits.
For more information, contact:
Bangko Sentral ng Pilipinas
A. Mabini St. cor. P. Ocampo St., Malate Manila
Phone : (02) 524-7011, Fax: (02) 523-6210
See also: How to Invest in SDA
source: Business World Online www.bworldonline.com, photo from article.wn.com