Emergency Fund Strategies: Philippines Investment Options

An emergency fund is a financial tool to handle uncertainty and life's curveballs. It is a readily available source of cash for unforeseen expenses or situations, separate from your savings and investments, and allows you to prepare for events like unemployment, medical emergencies, home repair, and car repair. The general rule of thumb for building an emergency fund is to save an amount equivalent to 3-6 months' worth of living expenses.

When deciding where to invest your emergency fund in the Philippines, it is important to consider liquidity and accessibility. While there are many options available, from high-yield savings accounts to money market funds and traditional savings accounts, it is recommended to avoid placing your emergency fund in instruments that lock up your money for a fixed period, such as time deposits, VUL insurance policies, or UITF accounts.

- High-Yield Savings Accounts: These accounts offer higher interest rates compared to traditional savings accounts and provide easy access to your money. Examples include Tonik Bank Stash Account and DiskarTech Savings Account.

- Money Market Fund: A low-risk, short-term mutual fund that is safe and highly liquid, making it a good option for your emergency fund. Examples include Sun Life Prosperity Peso Starter Fund and Land Bank Money Market Fund.

- Traditional Bank Account: If you prefer a more familiar option, you can choose a traditional savings or checking account. While the interest rates may be lower, these accounts are easily accessible and widely available.

High-yield savings accounts

A high-yield savings account is a type of savings account that earns a much higher interest rate than traditional savings accounts. It is easily accessible, making it a good option for emergency funds. Here are some things to consider when choosing a high-yield savings account in the Philippines:

• Interest Rates
• Accessibility and Liquidity

Look for a high-yield savings account that provides easy access to your funds in case of emergencies. Online banking or mobile banking features can also be convenient for monitoring and managing your account. Ensure that you can withdraw your money quickly and easily without incurring penalty fees.

Initial Deposit and Maintaining Balance

Many high-yield savings accounts in the Philippines do not require an initial deposit or a minimum maintaining balance. This flexibility allows you to start building your emergency fund with whatever amount you can save.

Security and Insurance

Choose a high-yield savings account that ensures the safety of your funds. Look for accounts that are insured by the Philippine Deposit Insurance Commission (PDIC). This insurance protects your deposits in case the bank closes down, allowing you to make a claim on your deposit.

Additional Features and Benefits

Some high-yield savings accounts offer extra perks, such as free life insurance, medical or dental benefits, or debit cards with rewards points. These additional features can enhance the value of your account.

• Tonik Bank Stash Account: Offers interest rates of up to 4.50% and does not require an initial deposit or maintaining balance.
• DiskarTech Savings Account: Powered by RCBC, this account offers an interest rate of up to 6.5% and has a maximum deposit of ₱49,700.
• GoTyme Bank Go Save: A digital bank offering up to 5% interest with no minimum or maximum deposit balance requirements.
• SeaBank Philippines Savings: A new player in the market, offering an interest rate of up to 4.5% with no initial deposit or maintaining balance required.
• Maya Savings: Provides a base interest rate of 3.5% and, until January 31, 2024, you can earn up to 14% interest by using Maya for various payment methods.

Money market funds

In the Philippines, there are many money market fund options available with no sales load, short holding periods, and low management fees. Most banks and financial institutions offer money market funds. Here are some examples:

• Sun Life Prosperity Peso Starter Fund
• Land Bank Money Market Fund
• China Bank Money Market Fund
• Rizal Peso Money Market Fund
• BPI Invest Money Market Fund
• PNB Prime Peso Money Market Fund
• PNB Institutional Money Market Fund
• PNB Prestige Peso Money Market Fund
• SB Peso Money Market Fund

However, there may be charges and fees when you withdraw your money, and there is still a chance of losing your capital. Additionally, the returns are modest and may be affected by fees.

Short-term government securities

The Philippine government issues two kinds of peso-denominated government securities: Treasury Bills and Treasury Bonds. Treasury Bills are obligations with a maturity period of one year or less, typically issued at a discount to the maturity value. Treasury Bonds, on the other hand, have maturities ranging from two to 25 years and are typically issued at par with periodic coupon payments until final maturity. Some bonds may be issued without coupons, known as zero-coupon bonds.

The minimum investment for peso-denominated government securities is ₱100,000. They may be used as collateral for loans and are subject to prevailing market interest rates. It's important to note that these securities are relatively free from credit risk but may carry market risks due to changes in interest rates.

When investing in short-term government securities, it's essential to consider the fees involved. For securities with a remaining term of 365 days or lower, there is a broker's fee and a trading platform fee. The broker's fee is calculated as the face value multiplied by 0.10% multiplied by the term divided by 360, or ₱200, whichever is higher. The trading platform fee is calculated as the face value multiplied by 0.0025% multiplied by the term divided by 365.

For securities with a remaining term of more than a year, the broker's fee is either the face value multiplied by 0.10% or ₱200, whichever is higher. The trading platform fee is calculated as the face value multiplied by 0.0025%.

Time deposits with early withdrawal features

Time deposits are a type of bank account that earns a fixed interest but cannot be withdrawn over a specified term or period. They are a good option for an emergency fund as they are a safe and stable investment option that guarantees a return on investment. Time deposits are also insured by the Philippine Deposit Insurance Corporation (PDIC) for up to ₱500,000.

However, one of the drawbacks of time deposits is that funds are locked in for a specific period, which can range from 30 days to seven years. If you withdraw your money early, you will be charged a pre-termination penalty—a percentage (usually 10% to 50%) of the interest earned.

If you are considering a time deposit for your emergency fund, it is important to weigh the pros and cons. On the one hand, time deposits offer higher interest rates than regular savings accounts and are a relatively low-risk investment option. On the other hand, the locked-in period may make it difficult to access your funds in an emergency, and you will be penalised for early withdrawal.

• Interest rate: Compare the interest rates offered by different banks. The interest rate represents your earnings, so look for an account with a competitive rate.
• Holding period: Consider how long you are willing to lock in your funds for. The holding period, or maturity period, is the length of time that the bank will hold your money.
• Deposit amount: Determine how much money you are willing to set aside for a time deposit. Make sure that withdrawing this amount will not hurt your savings, emergency funds, and monthly budget.
• Early withdrawal penalties: Find out what charges or penalties you will incur if you need to withdraw your money early.
• Accessibility: Consider how easily you will be able to access your funds in an emergency.

Traditional bank accounts

With a traditional bank account, it is easy to start an emergency fund and continue adding to it to grow your savings. They are a convenient, affordable, and secure way to maintain an emergency fund. You can easily access your funds in an emergency through an ATM or mobile banking.

However, there are some disadvantages to consider. The interest rates on traditional bank accounts are typically lower, and it is very easy to withdraw funds even when it is not a true emergency.

• BPI Easy Savings Account: This account has no initial deposit, a minimum monthly average daily balance of ₱1,000, and a required daily balance of ₱5,000 to earn interest at a rate of 0.0625% p.a. It also offers free life insurance and additional accidental insurance worth up to ₱2 million.
• Security Bank All Access Checking Account: This account requires an initial deposit of ₱5,000 and a maintaining balance of ₱25,000. To earn interest at a rate of 0.0675% p.a., you need a balance of ₱100,000. It offers life coverage of up to ₱3 million.
• Maybank Save 'n Protect Savings Account: This account has no initial deposit but requires a minimum average daily balance of ₱50,000 and a daily balance of ₱20,000 to earn interest at a rate of 0.25%. It offers free life insurance coverage of up to ₱5 million per account.
• RCBC EWoman Savings: This account has a minimum initial deposit of ₱15,000 and a required average daily balance of ₱15,000. To earn interest at a rate of 0.15%, you need a balance of ₱25,000. It offers free life insurance coverage of up to ₱2 million.

Frequently asked questions