18/07/2025
KALMADO NA BA ANG LAHAT?
SAVINGS IN THE BANK, NOW WITH 20% TAX!
A friend once told me, if you will not forgive a family member who hurts you, in the end, TALO ka din!
and now, Iām telling everyone this important and very timely advise,
If you will not save money, in the end, TALO ka din!
Indeed, some banks started imposing 20% Final Withholding Tax (FWT) on time deposits and peso bonds, after Republic Act 12214 or the Capital Markets Efficiency Promotion Act (CMEPA) became effective, on July 1.
In a statement, Security Bank and UnionBank confirmed that they had started implementing 20 percent tax on all long-term deposits and investments, on the first day of the month.
Meanwhile, some groups are opposing the new policy because depositors are supposed to lose it. Under this, people will tax 20% of their savings on long-term time deposits, which averaging only up to 6 percent interest per year.
That is, if a person has PHP 100,000 deposited in the bank, and he earns PHP 6,000 in a year based on the current 6% annual interest rate, the interest he earned will be reduced by PHP 1,200 due to the new policy.
Our total savings is NOT being taxed. Only the interest or ātuboā your money earns gets a 20% tax.
š Example
You deposit ā±100,000
Annual Interest Rate: 6%
Gross Earnings (Before Tax):
ā±100,000 Ć 6% = ā±6,000
Withholding Tax on Interest: 20%
ā±6,000 Ć 20% = ā±1,200
Net Earnings (After Tax):
ā±6,000 - ā±1,200 = ā±4,800
Final Balance After 1 Year:
ā±100,000 + ā±4,800 = ā±104,800
And this apply to the long term savings like time deposits because apparently, our regular savings are being tax already long time ago.
To refresh you with the current interest rates in the philippines, hereās some reference.
Traditional banks like BDO, BPI, or Metrobank usually offer very low interest ratesāaround 0.10% to 0.25% per year. These passbook or ATM accounts are great for accessibility and safety, but letās be honest: your money barely grows there.
In contrast, digital banks like Maya, SeaBank, Tonik, or GoTyme offer more attractive interest rates, typically 3% to 6% per year. However, these rates often come with strings attachedādaily balance limits, usage requirements, or promotional periods.
If you're okay with locking in your money, high-yield time deposits might be another option. These can range from 2% to 4.5% annually, but usually require a minimum deposit of around ā±50,000 and a fixed term of 6 to 12 months.
However, there are some which is not yet affected by the 20% tax (š®š š¹š²š®šš, š³š¼šæ š»š¼š) and hereās the list.
1. Cooperative Time Deposits ā if youāre a member of a registered coop, your savings might earn dividends tax-free.
2. Pag-IBIG MP2 Savings ā government-backed, 5-year term, tax-free dividends (subject to availability).
3. Stocks & Mutual Funds ā gains here have separate tax rules (e.g. capital gains tax, stock transaction tax), but not the blanket 20% on savings interest.
4. Life Insurance with Investment (e.g. VULs) ā long-term growth, with built-in life protection, and not taxed like bank deposits.
5. Crypto platforms ā risky, yes, but currently not affected by this FWT (Final Withholding Tax).
We just need to look for alternative, and youāll be surprised to learn that this alternative might be much better because it gives higher interest.
As a financial coach, I always give this advice,
If the interest rate is very low or inflation is high, you might lose purchasing power over time. In that case, saving in the bank is good but only for short-term goals. For long-term goals, your money might benefit from investment.
Now that you know, you can choose the best alternative that suits you and you now have the advantage to win in life too.
