Following my previous post on building an emergency fund, this post will be featuring a relatively safe place to park your money while earning higher interest than current savings account and time deposit. This was launched in 1998 by the Bangko Sentral Nang Pilipinas to manage liquidity in the market. This is the Special Deposit Accounts or SDA.
What are SDAs?
Special deposit accounts are good alternative to regular savings account and time deposits. They are managed by the trust department of the bank and considered as safe investments. These accounts are not insured with PDIC but are guaranteed by BSP. SDAs are short term investments, usually 14-day or 30 days and cannot be pre-terminated. Your investment is subject to 20% witholding tax and trust fee. Trust fees varies depending on the bank and investment amount. Interest rates may vary monthly depending on the rate issued by BSP.
How to Invest in SDAs?
Depending on how much you want to invest, approach the trust department of any of these banks (BDO, BPI , Security Bank, HSBC, China Bank, Union Bank) and inquire about SDA placement. The minimum investment amount varies for each bank. The lowest required investment amount is with BPI (Php 50,000). You will need to have a settlement account with the bank to tie-in with your SDA.
Opening a special deposit account is similar to opening a savings account. You will need two valid ID with photo, two 1×1 pictures and photocopy of your valid IDs. You have the option to automatically re-roll the principal, principal + interest or principal + interest + additional investment amount.
To terminate your investment in full, you must inform the bank one day before maturity date of your intent. To partially terminate your investment, you must inform the bank one day before maturity of your intent as well as ensure that you have the minimum required amount left to continue your SDA (e.g. BPI’s minimum is Php 50,000. You currently have Php 100,000. One day before maturity date, inform the bank that you would like to withdraw a minimum of P1 to a maximum of Php 50,000).
How to Compute Your Interest Earnings on your SDA?
Here’s a way to figure out your interest on your SDA investment: (This is just an example)
Investment Amount: Php 100,000
SDA Interest Rate : 4.00% per annum
Witholding Tax : 20%
Trust Fee : 0.50% per annum
No. of Days: 30 days
Formula for net interest rate: SDA Interest Rate * 0.8 – Trust Fee
In our example above: (4 *0.8 – 0.5 = 2.7% per annum)
Formula for interest earnings: Investment Amount * Net Interest Rate * (No. of Days / 360)
In our example above: Php 100,000 * 2.7% * (30/360) = Php 225
Note: The number of days in the year is 365. However, some banks compute it as 360. The number of days varies if the maturity date falls on a weekend or a holiday.
I have been using this product with BPI since May last year. I only found out about the interest computation last week. In any case, this is better for me compared to time deposits. However, I’m pretty sure I’ll be able to get a higher rate if I ask my aunt to place it on her time deposit account.
In any case, always remember, never put all your eggs in one basket. You can check more topics about personal finance and savings in my finance blog, Thrifty Pinoy.