Sunday, June 15, 2008

MONEYVANTAGE: Bank Deposits and Personal Savings Accounts

What is the purpose of bank deposit savings? A lot of people ask questions on why save your money on a savings account?

Savings accounts are accounts maintained by retail financial institution that pay interest but can not be used directly as money (by, for example, writing cheque). These accounts let customers set aside a portion of their liquid assets while earning a monetary return (see Wikipedia). A savings account can be in passbook or in Automated Teller Machines (ATMs).

A lot of people underestimate the use of savings account in bank although it only earns about one percent (1%) prevailing rates in the Philippines. Still a savings account is useful in many financial aspects. Saving money may be placed in short term or long term goals still the purpose he/she must undertake in securing his/her future. An example of the uses of this investment tool are raising for a down payment in order to purchase a property (condominium or a house & lot) or an automobile, setting up capital for a future business venture, or can be used as emergency fund, used for transferring fund via mobile banking locally or abroad or a keeping your personal secret stash.

Opening a bank savings account is easy, the purpose of opening a savings account for a smart financial investor is to "contain or temporarily store" some of your money in a bank and at the same time it can be used as a financial statement in acquiring bank loans (housing, automobile and personal loans), buy some other financial investments offered by this financial institution that produce higher yields. An example of this is buying a retail treasury bond in government controlled banks like Development Bank of the Philippines and Land Bank of the Philippines wherein it requires an initial deposit of PhP 5,000 on your savings account before buying Retail Treasury Bonds worth PhP 100,000.

For a clearer view, let set an example:

Ramon is a 9 to 5 office worker, he receives a an average of PhP 14,000.00 a month. He is a novice investor and have average knowledge in investments thanks to his peers encouragement in reading financial planning books and attended some free financial literacy seminars. He saves a portion of his salary because his goal is for him to set aside money for emergency fund that is good for six months in case he lost his job (or get sick), set aside a downpayment for his equities on his planned purchase of a PAG-IBIG accredited development (house and lot package) in Cavite and at the same time save for an initial capital for a small time enterprise or business in the sides in by next year.

He maintains five savings account which he manages from different banks, he puts up his goals into action.

ABC Bank: saves money for Contingency or Emergency fund
XYZ Bank: saves money for a purchase of higher yielding investments (ex. stocks, mutual funds, Value Unit Linked Insurance, etc.)
LEVI Bank: saves money for initial capital of his small business.
EFG Bank: saves money down payment in acquiring a buying a house and lot with an Pag-Ibig accredited property developer in Cavite.
BBB Bank (ATM provided by his employer): Salary and personal expense fund.

When time and money matures they can eventually use the saved money in their specific goals or reinvest it with higher yielding vehicles like equities, mutual funds, money market bond funds, UITFs etc.

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