Monday, April 16, 2007

Worked Example showing what's possible.

Worked Example

Showing what could be achieved using certain Rural Bank Products in the Philippines
NB: This is for illustrative purposes only, it is not suggested it is followed, without taking independent financial advice.

Suggest having a 'balanced investment Portfolio' and perhaps never invest more than you can afford to lose?

See Spreadsheet for detail.

Here we see how a Family (couple with 2 children), could invest up to Php2M, in just one Rural Bank, and stay within the PDIC insured Deposit limits (Php250K per depositor):-

Rural Bank 1

This shows the 6 Year 'Hybrid' CTD/SSD product, which not only gives 20%pa Rate, with Interest credited Monthly (Tax Free), but offers 20% Advance Interest (from months 61-72). This effectively lowers the cash investment required by 25%, but does mean no Interest in the 6th Year. However in the unlikely event of the Bank getting closed by the Philippine Monetary Board, and handed over to the PDIC for liquidation, all Interest received to that time is retained. Any future interest will be lost whilst the claim is processed by the PDIC, and ones Deposit returned.

This could be repeated at a 2nd Rural Bank if required?

This example shows potential additional Deposits at another Rural Bank, but this time using the
5 Year Time Deposit (CTD/SSD) product.

Rural Bank 3

This could be repeated at a 4th Rural Bank if required?

SUMMARY (if options for additional Rural Banks taken up for consideration):-
Investment (consideration)............... Php7,200,000
DEPOSIT Total (Returned after 5 Years)..... Php4,000,000
Total (Returned after 6 Years)..... Php4,000,000
Interest Received (per month) ...............................................Php133,333

Depending on your Finances, circumstances, and Investment Portfolio diversity, if having additional funds for Rural Bank Time Deposit consideration, one could consider an additional Rural Bank, but utilising it’s monthly Interest re-invested to a 6th Rural Bank, perhaps?

Additional Deposit consideration, providing re-investment to help protect Capital against Inflation:-

You will note here, only half the possible Deposits have been placed. One could double ones Investment in this Rural Bank, if funds and investment plans permit, potentially, and still remain within PDIC insured Deposit limits?

Using just the Deposits shown above in this illustration however, produces additional income of Php16,666.67 a month. If this is kept in a Savings Account, after 6 months it will be at least Php100K. This is typically the minimum Deposit for a 5 Year Time Deposit.

3 Year Time Deposits may also be available (also paying 20%pa potentially, but one has to be aware such 20% Rates might not be available at the end of the 3 Year Term?).

Rural Bank 6

The revised totals would thus become:-

CASH Investment (consideration)....................Php8,000,000
Total (Returned after 5 Years)..........Php4,000,000
DEPOSIT Total (Returned after 6 Years)..........Php5,000,000
DEPOSIT Total (Returned by end of Year 10)...Php1,000,000
CAPITAL TOTALPhp10,000,000
TOTAL Interest Received pm (after Year 5) = ...........................Php166,667

This is just an illustration of what a Family (couple with 2 children), could consider as an Investment, into 5 Year CTD & 6 Year 'Hybrid' Time Deposits of certain Rural Banks in the Philippines.
Anyone considering such, should conduct their own research to make sure the products, rates, minimum deposits, and PDIC insurance Deposit limits are met.

Decide if the Reward v Risk is acceptable - seek Independent Financial Advice, if required.

This illustration can be scaled down, but the PDIC insured limits have been met with this example in Rural Banks 1, 2, 3, 4.

Rural Bank 5 investments could be increased with another 4 x Deposits of Php200K, which utilising the 'Hybrid' Advance 20% Interest, increases Total Deposit by additional Php1M.
This is turn can be re-invested in Rural Bank 6, which still has scope for additional Php1M Deposit through careful selection of deposit amount and depositor to stay within PDIC limit of Php250K per Depositor (Single Account) + Php250K limit shared (Joint Account) Depositors total.

Saturday, April 14, 2007

How can such Banks afford to give 20%pa on Deposits?

The simple answer to "how Banks can afford to pay out 20%pa on Deposits", is "they do so, by charging high Interest Rates for 'Loans' (typically up to 36%pa)".

Now you may be thinking that 36%pa is very high Loan Rate?

Well that is 3% per month, and typical of what a Credit Card company might be charging.

In much of the Philippines, the only way villagers can borrow money is from loan sharks. They collect from their debtors every day. The most efficient private entities who are engaged in micro-lending are the "Bombays". Although they operate illegally as usurers, they have actually mastered the technique of marketing and collecting, so much so that they have flourished and grew and their simple "5-6" operation have been passed through generations.

They're known as five-sixers because they take six pesos back for every five they lend. That works out to an annual interest rate of over 1,000 percent.

Indebtedness to informal loan sharks is a huge problem in the Philippines.

Many of the Philippines poorest, who live on the edge of subsistence without a single peso's margin, have no option but to go to the local money lender for loans to buy stock for their small businesses, or to tide them over when emergencies come up.

These guys charge anywhere from 5 to 20% interest per month ( that's 60 - 240% per year! ) and can use brutal tactics on anyone who don't pay.

In the "one-day-loan" system they might charge 100% per day!

At these kind of rates, debts quickly skyrocket, and many find themselves in a swift, downward spiral, with more and more of their money going just to pay the interest, losing all hope of getting out of debt.

It seems crazy to pay this kind of interest, but to those with no other credit options, the money lender means survival, and so people keep going back.

This is why the poor stay poor.

I think this explains why many in the Philippines, are willing to borrow money from a Bank that charges as much as 36%pa, for such a loan.

How can these Banks be sure they will collect the loan repayments?

Generally such Banks typically offer such loans, only to those with proven means to repay. This might be various types of loans like micro-finance loans for entrepreneurs. Salary loans for government teachers for example, with automatic salary deduction schemes guaranteeing a 100% collection. These, among others, ensure the Banks of receiving between 24% to 36% interest income per year. OFWs, soldiers, and SMEs, are other typical borrowers of money from these Banks.

Why such a difference between these 'Rural Banks', and the 'Commercial Banks'?

As an example, I heard that BPI Family Bank have a rule of thumb for its bank: add 7% to the cost of money and you have the general cost of capital.

A 'Commercial' Bank's long-term lending rate might typically be 11% now. Deduct 7% and you have just 4%. The bank can offer its clients is 2% for saving deposits, with just 2% profit for the bank. Commercial Banks don't make their big money from savings/loans - rather from Credit Cards and the like.

A 'Rural' bank's lending rate averages 36% for short-term loans. Deduct the 7% and a Rural Bank has 29%, leaving 9% profit ,after offering clients 20%pa on Deposits.

Other banks may set aside a big percentage as provision to write-off bad loans, while a Rural Bank that has a low ratio of bad loans, would need only a smaller percentage as provision.

Of course, other factors like stakeholder expectations on ROI, and actual operating expenses all come into play. Generally you find most Rural Banks have lower overheads - smaller, less prestigious offices, a lot less 'managers', means lower salaries also.

Rural Banks have to stay 'competitive', to attract 'cash' Deposits.

Rural banks lose P500m accounts
By Eileen A. Mencias

The Rural Bankers Association of the Philippines has asked the Bangko Sentral ng Pilipinas to stop the migration of deposits from rural banks to big commercial banks.

Pablo Ronquillo, a consultant of the Rural Banks Association of the Philippines and a former central bank lawyer, said deposits in the rural banking industry were being siphoned off by the big universal and commercial banks through their high yielding unit investment trust funds.”

"The good prices on the bonds and equities resulted in an improvement in the value of most trust funds, with some even reporting a net return of as much as 24 percent.

“The UITF offers as much as 24 percent net interest on deposits which is too attractive and tempting for the enterprising depositors to transfer their accounts not only from rural banks but also from other thrift and commercial banks,” Ronquillo said.

Tetangco, however, told reporters that the central bank had seen an increase in deposits in the system. He said higher deposits were also noted in thrift and rural banks".

So Rural Banks need to offer products such as 5 Year Term Deposits with 20%pa Interest Rates (with interest credited monthly), to remain attractive to Depositors, who might otherwise consider UITF's paying 24%?

Personally, I will stick to these Rural Bank Time Deposits, for the following reasons:-

  1. Less Risky - Deposit insured by PDIC
  2. Guaranteed Return - CTD states Interest Rate of 20%pa, paid monthly for full term
  3. Tax Free - Interest payment gross of 20% Withholding Tax (as exempt)
  4. Ability to Cancel, quick payout and with known costs - High net balance.
    If needing urgent cash for some emergency, it is possible to cancel the Time Deposit.
    This can be done quickly (1-2 days), and the penalties are fixed and known for doing so.
    In most cases you will still be better off financially, for having placed than the Time Deposit, then terminated, over any other form of savings investment over the same period.

So far, I have not come across any, overriding reasons, why one should NOT consider such Deposits?

Wednesday, April 11, 2007

Interest Rate of 20%pa on Peso Time Deposit!

When most Commercial Banks are currently offering Interest Rates of under 6%, it is good to discover some Rural Banks, in the Philippines, are offering 20%pa, with the Interest credited Monthly.

Most people's first reaction, on hearing about a Bank offering an Interest Rate of 20%pa, when most Banks are offering considerably less than this, is one of scepticism.

This is understandable -
As you rationalise that the Commercial Banks are not offering Interest Rates anywhere near as high as that, there must be a reason for it, surely? If these Rural Banks are offering such high Interest Rates as 20%, then there must be a catch to it, or it is extremely risky, or something?

First off all Banks in the Philippines come under the Control & Regulation of Banko Sentral ng Pilipinas.

Banking Supervision
The Bangko Sentral has supervision over the operations of banks and exercises such regulatory powers as provided in the New Central Bank Act and other pertinent laws over the operations of finance companies and non-bank financial institutions performing quasi-banking functions.
BSP Unveils Basel II Implementing Guidelines
The Monetary Board approved on 2 June 2006 major revisions to the risk-based capital adequacy framework which will take effect on 1 July 2007, to align the existing Basel I-compliant framework with the new Basel II standards. As approved, the MB decided to maintain the present minimum overall capital adequacy ratio (CAR) of banks and quasi-banks at 10 percent. However, consistent with Basel II recommendations, the MB approved major methodological revisions to the calculation of minimum capital that universal banks, commercial banks and their subsidiary banks and quasi-banks should hold against actual credit risk exposures. This significantly amends BSP Circular No. 280 dated 29 March 2001 (for banks) and BSP Circular No. 400 dated 1 September 2003 (for quasi-banks). Stand-alone thrift banks, rural banks and quasi-banks will, however, continue to be covered by existing regulations (i.e., Circular Nos. 280 and 400) insofar as credit risk measurement is concerned.

OK, so the Rural Banks, are also controlled and Regulated, but some of them still seem to fail -

"Wont I lose my savings in the Deposit, if the Bank gets closed down?".

There is a Government Financial Institution (GFI) by the name of Philippine Deposit Insurance Corporation (PDIC)

PDIC is a government-owned and controlled corporation created in 1963 by virtue of Republic Act 3591 for the purpose of insuring bank deposits. The latest amendments to RA 3591 are contained in RA 9302 enacted on July 27, 2004, which provided enhanced depositor protection through increased deposit insurance coverage up to P250,000 and strengthened PDIC's risk management capabilities through the restoration of PDIC's authority to examine member banks with prior approval by the Monetary Board. The new law also enhanced PDIC's receivership and liquidation powers.

The PDI's 'Mission Statement' being:-

"We as, Deposit Insurer, Statutory Receiver and Co-Regulator of Banks, safeguard the interest of the depositing public and thereby contribute to the promotion of financial stability in the economy.

What are the functions of PDIC?

  1. Insurance
    The PDIC assesses and collects insurance assessments from member-banks to insure member-banks’ deposit accounts. In case of bank closures, the PDIC processes and services claims for insured deposits. Deposits are insured up to a maximum coverage of P250,000 per depositor.
  2. Bank Examination
    Under the new law, PDIC's authority to examine its member banks, with prior approval by the Monetary Board, has been restored.
  3. Bank Rehabilitation
    The PDIC may grant financial assistance to distressed banks if it is proven to be a less costly alternative than closure.
  4. Receivership of closed banks
    Once a bank is ordered closed by the Monetary Board (MB) of the Bangko Sentral ng Pilipinas, the PDIC is designated as statutory receiver. The PDIC upon receipt of the MB resolution ordering the closure of a bank, immediately physically takes over the closed bank. Receivership is the stage within which the PDIC manages the affairs of the closed bank and preserves its assets for the benefit of creditors.
  5. Liquidation of closed banks
    After it is determined that the closed bank can not be rehabilitated, the PDIC shall recommend the liquidation of the assets of the closed bank. Liquidation refers to the recovery and conversion of assets into cash for distribution to all creditors in accordance with the order of creditor preference pursuant to law.

"OK, so there is this PDIC deposit insurance thing up to Php250K per depositor/bank"

"What's the point in placing a Deposit with Banks, that might get closed down? Even if such Deposits are insured, I will still have to then go through all the 'hassle' of submitting a Claim and waiting for it to be processed. Surely I will be losing interest on my Deposit, while the claim is being processed?".

Yes that is true; should a Bank get into financial problems, the 'MB' will issue the official closure of said Bank. The PDIC will then step in as statutory 'Receiver', and if such Bank can't be 'Rehabilitated', the PDIC will 'Liquidate' the assets of the closed Bank, and initiate the Claims procedure for the insured Depositors. The Depositors will not be receiving any additional Interest from the date the Bank is declared closed.

Depositors will be advised through the national and/or local media and posters at the premises of the closed insured bank and other public places within the locality on the schedule of claims servicing and the prescriptive date of filing claim. The PDIC states - "The claim for insured deposit should be settled within six (6) months from the date of filing". In practise however the PDIC has been processing claims a lot quicker than this.

It might be a pain, and some 'hassle' ,of submitting a claim with all the required documents to ensure ones claim for insured deposit is processed ASAP before ones Deposit will be returned. And yes one will have lost the Interest on such Deposit for up to 6 months.

But look at it this way - is the reward of 20%pa, not worth the Risk and the inconvenience?

Let us take a look at this a bit closer:-

If you check the PDIC website, you will see there are currently some 746 Rural Banks listed.

The PDIC records some 382 Rural Banks as having been closed (between 13 June 1961 and 19 January 2006 = 44.5 years).

This is an average of 8.58 Rural Banks getting closed per year, which is 1.15% of the Total. (assumes Total Rural Banks, over period = 746)

Suppose you placed Php100K in a Rural Bank - 5 Year Time Deposit. You picked 1 of 12 Banks, offering 20%pa to put your deposit in. That particular Bank happens to be one that fails and gets closed some 6 months after you placed your Deposit. You will only have received 6 monthly Interest payments (Php100K x 20/12 x 6), Php10K. It then takes 6 months before the PDIC returns your 100K Deposit./ So in 12 months you only received Php10K (10%).

That 1 Bank (out of 12), just 0.134% of the Total Rural Banks, just happened to be that closed, six months later. Pure mathematical odds of that happening must be pretty slim. Pick a good Bank with a long 'track record', and good Capital investment, and the odds reduce considerably more?

But provided the Bank was in business for at least 6 months, you still made 10%pa Interest, (even waiting 6 months to get your Deposit back).

Compare that with any other Bank offering Peso Time Deposit over 364 day period
(e.g. BPI Family Savings Bank Php100K, 360-364 days = 2.875%).

Php2,875, compared to Php10,000, (and you were unlucky to select a Bank from the 1.15% that fail, on average, each year)! What would you rather end up with after 12 Months?

Every month that Rural Bank stays in business, paying you 20/12% Interest, you are making more and more money over what you could get in a Commercial Bank.

After 60 Months, you will be considerably better off - anything for 2, or 3 times to 5 times better off. Your Deposit will have at least Doubled (perhaps more, if you re-invested, your Monthly income, in other Savings products).

This is fundamentally why I considered the RISK, fairly low (given the PDIC insurance, and only 1.15% Banks failing, on average. Yet the REWARD is HIGH, making it too good an investment NOT to consider seriously.

It also beats the Philippines inflation (6.2%* officially last year) , by a comfortable margin.
*Average annual Headline Inflation Rate - National level, 2006

If you are earning less than 6.2%, after Tax, your spending power is being eroded.

So do you still want to dismiss these 12 x Rural Banks?

  • 20%pa Interest
    Credited Monthly
    Tax Free Payments (5 year minimum saving accounts, exempt the 20% Withholding Tax)
  • Each Deposit insured by PDIC (up Php250,000, per Deposit, per Bank)
    Joint Accounts, carry separate PDIC Insurance (up to Php250,000 also)

So perhaps they are worth looking into after all?

NB: There is also the 6 Year 'Hybrid' Time Deposit/SSD, you might care to consider?

This is essentially the same as the 5 Year Time Deposit, except having Term of 6 Years (72 Months), AND there also being an Advance 20% Interest payment *
(* Interest for months 61-72, paid up front, in lump sum - tax free).

If terminated, for any reason, prior to the Maturity Date, there will be 'claw backs' and deduction (from the Deposit). Notably:-

  • Reduction in Interest Rate (applicable for length Deposit held) the
  • Advance 20% Interest up to month 61 (pro-rata, thereafter), 6 Year 'Hybrid Deposits only
  • Payment of Withholding Tax
    (depends how long the deposit was held, prior to termination - e.g. 3 Years = 12% Tax rather than 20% )

A friend of mine, needing additional funds (to complete the building of his house), and not finding cheap loans, decided to terminate his 6 Year 'Hybrid' Time Deposit. He was able to get hold of the money within 2 days, and the amount was higher than he expected?

Certainly he was pleased to have placed such Time Deposit, and happy with 'net' proceeds , and received the 'Cash' very promptly, after requesting the Termination.

He said it was still considerably more than any shorter Term savings deposit in any other Bank, would have produced.

If you would like to consider such a 6 Year Hybrid Time Deposit/SSD, or a 5 Year Time Deposit/SSD, that me and my friends invested in, contact me, via e-mail.

If you don't fully understand something that I posted, or have a question that I have not yet covered with an explanation/answer, or simply disagree with what I wrote - post a Comment (or send me an e-mail).


Brit in Cebu

Tuesday, April 10, 2007

"A New Car, and Your Money Back!"

"New Car, and Your Money Back in 5 or 6 Years!"

Sounds great, doesn't it, but is it possible?

This could be achieved, using the "Double Your Money in 5 Years" Time Deposits, but in practise, would mean you covering any Deposit on such a car, and depositing funds, rather more than the cost of whatever car you want to buy?

However it is a better way to buy a car than taking money out of you Bank Deposit to buy a vehicle for CASH (IMHO) - here's why:-

  1. Dealers don’t seem to offer discount for CASH, (well not here in Cebu, on latest models, anyway).
  2. Once the car leaves the showroom, having been bought for CASH (and insurance sorted, and LTO fees, number plates, delivery charges etc), it has already depreciated, and quite considerably usually.
  3. Try selling, and almost impossible, to get back what you paid for it!
  4. Taking money from the Bank, lowers you capital held, and perhaps you ’status’ with the Bank.
So what is the Alternative?

Well it my case, it was utilising the - 6 Year ‘Hybrid’ CTD from certain Rural Banks,

Rather than withdrawing funds from a commercial bank, to buy a car, for cash, I ‘borrowed’ against the funds, I had on deposit.

I borrowed Php1M, and placed these as Php250K deposit, in my name, Php250K in my wifes name. We also opened a ‘Joint’ account with me and my wife, for another Php250K, and also with me and my 21 year old step-daughter.

So 4 x Php250K deposits placed in 6 Year Hybrid CTD, all covered by PDIC insurance.

With this ‘Hybrid’ TD, you get the interest for months 61-72, up front, in ‘advance’.
So we received Advance Interest of Php200K Cash (this being 20% of Php1M) immediately!

The vehicle I bought, was a Hyundai 1.5CRDi VGT, costing Php700K, in Cebu.

This 'Advance Interest' of Php200K covered the 20% Deposit on the Hyundai purchase, as well as the LTO Fees (3 Years worth), Delivery Charges, Fully Comprehensive Insurance, and some extras on the vehicle like extended anti-corrosion treatment, high level spoiler with LED Brake Lights, and Wireless Central Locking/ Alarm.

The 80% Balance on the car was funded via a 48 month AutoLoan of Php15,262 a month, in arrears.

Since the monthly Interest from the Php1M 6 Year ‘Hybrid’ CTD, was to be Php16,666.67 a month, this easily covered that. The balance could be used for vehicle services or saved up to cover the Comprehensive Insurance renewal.

So at the end of 6 years, I have:-
  • 6 year old vehicle, (fully serviced, insured, and maintained)
  • Extras:
    - Anti-Corrosion Warranty,
    - Hi Level Spoiler/Brake Lights,
    - Remote Central Locking & Alarm system
  • Php200K (interest from months 49-60),
  • Php1M refunded Deposit.

Seemed a better deal to me, than having withdrawn Php700K from a commercial Bank, to buy the Hyundai Matrix 1.5CRDi VGT, for cash!

The point here is that it can be done - because I am doing it.

BUT think you need the 6 Year ‘Hybrid’ TD, with the 20% ‘Advance Interest’, to cover the Deposit on a new car, You probably need to Deposit more than the purchase price, to fully cover the Auto Finance over 5 years, or less, as well as LTO Fees, insurance, service costs etc.

How to "Double Your Money in 5 or 6 Years"

When you see an Advert that proclaims -

"Double Your Money in 5 Years!"

What do you think, a 'Scam', and perhaps "Too Good to be True",
or what?

Well, I too was very 'sceptical' of such claims. However, rather than just 'dismiss' it, I decided to 'investigate' to see if it could be true - I'm glad I did, because it's not a scam!

I actually found a foreigner, who had put money into such "Double your Money in 5 Years" Time Deposits, here in the Philippines. Whilst it was High Risk potentially, he did receive, Interest Payments (totalling his Deposit), together with the returned Deposit, after 60 months.

Seems some Banks only offer, "Double your Money in 6 Years", now, but this is still a lot better than most Commercial Banks were/are offering for Peso Time Deposits.

One Bank, offering such a 'product' is

Rates:12% for P3,000,000-P4,999,999.

Bankers Club Pensionado
Yes, you can retire rich!This is a long term special savings account that will double your money in 6 years, and lets you immediately have your interest income credited to your regular savings or checking account with First Country Bank every month, tax free!
Live off the interest on your investment and enjoy your dream retirement.

High net-worth individuals who want a high return on their deposit, but want to enjoy regular monthly interest income.


  • Doubles investment in just 6 years
  • Credits interest every month
  • Exempt from withholding tax
  • Loan against deposit

Rate:12% compounded (or 16% straight)

This is not the only such 'Rural' Bank offering such good Interest Rates
I also found this one from a 'Google' search:-

Well that Website, also promotes Auto Loans on vehicles up to 15 Years old, with an Interest Rate for such Loans as low as 7%!

Do you think 7% pa Interest on a Loan where they offer up to 50% of a vehicles value as 'collateral' for such loan, is good rate?

Well perhaps 7%pa, seems a little 'high', to those in Western countries right now?

Well, not here in the Philippines - the cost of 'borrowing' cash is HIGH.

Pawn Shops/Money Lenders, will ask 3% per month (36%pa - or higher, as APR) typically!
That is for 'secured' loans' with collateral.

I was very happy to have discovered some Rural Banks, here in Cebu (and other parts of the Philippines), that pay 20%pa, with Interest credited monthly (tax free).

This is still the 'Double your Money' in 5 Years'.

In fact you can earn an even Higher Rate, than this?
If you invest the monthly Interest payments into other, shorter term Peso Time Deposits*, and then 'Roll these over', along with subsequent interest payments. Once you deposit has accumulated sufficient, you can move up to next 'tier', and for longer period, whilst other deposits build to similar levels.

Compound Interest on those Interest Payments

*Katuparan Special Savings


-- RANGE --------------- 30 Days --60 Days -- 90 Days -- 180 Days
P5,000-P19,999 ---------------5% -- 5.25% ------5.50% -----5.75%
P20,000-P49,999 -----------5.75% ----- 6% ------6.25% ---- 6.50%
P50,000-P99,999 ---------- 6.75% ----- 7% ------7.25% -----7.50%
P100,000-P499,999 ---------7.75% ----- 8% ------8.25% -----8.50%
P500,000-P999,999 ---------8.75% ----- 9% ------9.25% -----9.50%
P1,000,000-P2,999,999 -----9.75% ---- 10% -----10.25% ----10.50%
P3,000,000-P4,999,999 ----10.75% ---- 11% -----11.25% ----11.50%
P5,000,000-Up ------------- (N E G O T I A B L E)

I just used as an illustration, as they have Rates that can be checked on their website.

For example, say you were to place a 5 Year Time Deposit of say Php240K with a Rural Bank offering 20%pa.
(Not advisable to place single deposit, in any 1 Bank, higher than Php250K. - limit for the PDIC insured Deposit.
See for more info).

This would earn you Php4,000 a month, tax free interest, each month, for 60 months.

You would need 2 months Interest, to start placing Deposit in First Country Rural Bank, as an example.
After 5 months, you would have 20K, plus 4 months, accumulated, compounded interest, and able to earn higher interest at next 'Tier'.

At the end of 24 months you could have accumulated Php92,995.80 in Interest in this way, using those Rates.
At the end of 60 months you could have accumulated Php289,536.65 in Interest (120.64%, or 24%pa straight).

This, together with your Deposit of Php240K, gives a Total = Php529,536.65 (220.64%).

More than Double Your Money in 5 Years!

That was just a worked example, to show the effect of Compound Interest, applied to a Time Deposit offering 20%pa.

The Rural Banks offering 5 Year Time Deposits of 20%pa, may well have 30/60/90 Day Time Deposits etc, better than those of First Country Rural Bank, perhaps?
(But they don't have Websites 'advertising' such Rates).

Anyone wanting to check if a Rural Banks is 'genuine', can check /search the following websites:-

Many Rural Banks that were offering High Interest Rates of 12%pa and above, have been closed down by the BSP.

Whilst these Deposits are now insured to Php500,000.00 wef 1st June, it should be noted that above Php250,000.00 is to be collected from the Philippine Government up to 1st June 2011.

Considering how much trouble and time it has taken the PDIC, to service Claims in these 12 x Legacy Group Banks insured to Php250,000 only, that were declared Closed by Monetary Board Resolutions in December 2008, one should consider Deposits over Php250,000 very carefully. There is to be new Government elected in May 2010 and the PDIC having to get the funds above Php250,000 from them, might cause further delays in such Claims payments perhaps?

Also note any Bank offering more than say 12%pa, should be viewed with some caution?

Why - because the BSP / PDIC have stated that any Bank offering Interest Rates > 50% more than comparable peer Banks, might be guilty of Unsafe and Unsound Banking Practices?

So if in the unlikely event any Bank is offering >12%pa, ask them to give a statement in writing that they have not received any WARNINGS from the BSP or PDIC or proof that such high Interest Rates are sustainable.

Double check with the Consumer Affairs Department of the BSP to determine if any such WARNING has been issued to such Bank, and if so if any 'Cease and Desit Order (CDO)' has also been issued. If not, then such Products should still be insured with the PDIC, but they have not made it clear that any such CDO, is only applicable to Deposits placed after such Order is issued, and would not be insured by the PDIC from that point onwards. i.e. Deposits already placed prior to such CDO, will continue to be insured until Maturity. I would want this in writing from BSP and PDIC Depsoitors Assistance Bureau before placing funds into any Deposit offering 12%pa or higher.

Why 12%pa or higher, Interest Rates, should be viewed with caution?

I managed to secure 12%pa Gross (6.4%pa after deduction of 20% Withholding Tax on 1 Year Peso Time Deposit, paid Quarterly) with GreenBank

Any Bank offering higher than 12%pa, might be considered as potentially practicing unsafe and unsound banking practices the BSP and PDIC have stated, but this is not the only 'indicator' they will look at.

Consider also that the Maximum Insured Deposit is now Php500,000 - double that of Php250,000 effective up to 1st June 2009. The PDIC has still not serviced all claims (some not received any payments yet some 15 months since closure of those 12 x Legacy group Banks in December 2008). With the higher amount, and anything above Php250,000 to be paid by the Government (of which, a new Government to be elected from May 2010) until 1st June 2011, who knows how long it will take the PDIC to process claims and make payments, having collected the balance > Php250,000 off the Government, for any Bank offering High Interest rates for Php500,000 Deposits, that then gets declared CLOSED by the Monetary Board?

If I come across more solid Banks like GreenBank, I will let you know, or read Pinnoy Money Talk Forum to discover such, but I suggest you check with the Consumer Affairs Department of the BSP to ask if any such WARNINGS or CDO been issued to said Bank, before placing funds in such.

Perhaps such inquiry might cause an investigation into 'Unsafe or Unsound Banking Practices' but better that then find such Deposits might be declared 'Uninsured' by the PDIC if such Warnings and then CDO has been ignored by the respective Bank? Even if such products issued prior to a CDO, are still insured by the PDIC, and the Bank then gets issued a Closure Resolution byt the Monetary Board, how long will it take the PDIC to pay up. No good getting say 16%pa, for just 6 months, then Banks is closed, it taking more than 18 months later to get ones Insured Deposit back! That would only be 4%pa over 2 years!

Early Retirement - How to Afford it?

Whilst the 'Cost of Living' in the Philippines, is considerably less than civilised Western Countries, you still do need some form of income to live off, and which beats inflation.

There has been much discussion on the Cost of Living on various Yahoo Groups and Forums that provide information on Living In The Philippines, and that of Cebu in particular.

It really comes down to what 'Life Style' you live I guess.

It also depends if you are married, or hoping to find someone to marry. Those married can buy land in their wife's name as a Foreigner cant own land in the Philippines. You can Lease Land for up to 50 Years however. You can also own the house built on Leased land or land owned by your wife.

Cost of building a house is very reasonable in the Philippines, due to relatively low cost of labour. I had a 105 sq m floor area, 3 storey 'extension' built a couple of years ago for Php1.3M.

(In the UK, my sister spent more than that, on just a 'Conservatory' and kitchen make over).

Many just Rent a place to live in - some furnished, others buy their own furnishings. Rents in Cebu vary according to location, and size. Perhaps from as low as Php4,000 for non-furnished, away from Cebu City, to Php15,000 a month, or even as high as Php50,000, for large properties near the beach, with swimming pool perhaps?

4 BR, 2TB, located in Pacific Grand Villas subdivision, Mactan. Furnished at Php30K/mo.

Coral Point Condo: CE unit - 2 BR, 2TB, beach front, very quiet, furnished at Php50K/ mo.

Ignoring the cost of accommodation, a couple can live reasonably well from Php20,000 a month (or less) in Cebu, to Php50,000 (or more), depending on how much you like to eat/drink out , travel, socialise etc.

Many Filipinos (over 40%, 34 Million+ according to World Bank 2004 figures), live off less than US$2 a day.

Fortunately, I had some 'Private Pensions' in the UK, and under current UK law, one could convert these into an Annuity from Age 50. You can also elect to take up to 25% as a Tax Free Cash Lump Sum, which is what I did.

The 75% balance, of my Private Pensions, converted to an Annuity, pays me almost £300 a month. This is no where near enough to consider retirement on in the UK, or Europe.

Converted to Peso, however, is currently about Php28K a month.

The 25% cash, was converted to Peso, when it was about Php107 = £1.

This 'capital' was placed into a 5 Year 'Term' Deposit with HSBC. At that time, about 3 years ago, the Interest Rate on such a Deposit was 8.3%pa, with Interest paid Tax Free (no 20% Withholding Tax deductions on savings with maturity of at least 5 years) monthly, into my ATM account.

The other good thing about this 'Term Deposit' is that HSBC allow you to borrow money (up to 85% on Deposit currently , was 90%) via AssetLink, where the Interest on such loan, is never higher than the Deposit Rate +1%. I took advantage of this AssetLink Loan to pay for building my house.

My 'Ex' got to keep our house in the UK, from our Divorce. I had my Pension, some of the 'With Profit' Endowment type policies, an Apartment in Cyprus (subsequently forced to sell to pay Solicitor Fees, and Credit Card bills), and my Triumph Trident T160 motorbike.

After my 'retainer' income stopped in 2002, and was forced to sell my Triumph Trident T160 to help pay my son's University education, - how I miss that bike.

I do have another motorcycle, but it's a bit of a let down from the 750cc 3 cylinder Triumph.

It's a Chinese motorbike -
'Lonsin' T200 'Terminator'
200cc, Single cylinder, 'Cruiser' style, motorbike.

Bought this off a friend for just Php40K.

I sold up my 'With Profits' Endowment type Policies - I needed the money to live off, more than the 'Life' cover, in case I die?

NEXT: How to "Double Your Money in 5 Years?"

Permanent Residency in the Philippines

Many foreigners with extended stays in the Philippines, or living/retiring there, simply keep extending their 'Tourist' Visa.

Many foreigners can avail of a 21 day 'Visa waiver'.

Visa Extension - submit application for initial extension of 38 days, followed by up to 5 repeated applications of 59 days stay. One must leave the Philippines before 12 months from date of arrival. The process can be repeated on next arrival to the Philippines.

There is now something called the ACR I-Card (Alien Certificate Registration - electronic card).

All registered aliens, including their dependents, who have been duly issued paper-based ACRs are required to replace their ACRs with the hi-tech microchip-based ACR I-Card.

All aliens who have been duly issued immigrant or non-immigrant visa and all other aliens who are required to register under the Alien Registration Act are required to register and apply for the ACR I-Card. They are the following:
  1. Native-Born
  2. Permanent residents under:
    a. Section 13 and its sub-sections
    b. Republic Act Nos. 7919 and 8274 (Alien Social Integration Act of 1995)
    c. Executive Order No. 324 (series of 1988)
    d. Note Verbale No. 903730 dated Sept. 17, 1990 between Philippines and India
  3. Temporary residents under:
    a. BI Law Instruction No. 33 (Series of 1988)
    b. BI Law Instruction No.13 (Series of 1988)
    c. BI Law Instruction No. 48 (Series of 1988)
    d. BI Memo Order No. ADD-01-038 (series of 2001)
    e. BI Memo Order No. ADD-02-015 (series of 2002)
  4. Temporary visitor under Section 9(a), PIA –one who is coming for business or pleasure or for reasons of health if his stay exceeds six (6) months
  5. Treaty trader under Section 9(d), PIA
  6. Temporary student under Section 9(f), PIA
  7. Pre-arranged employee under Section 9(g), PIA
  8. Such other aliens as may be required by law to register
  9. For those who are required to register but exempted from immigration fees, they may opt to avail of the ACR I-Card subject to payment of the card fee.

For those not married to a Philipino spouse, there are just 2 alternatives to extending a Tourist Visa, better suited to Permanent Residence in the Philippines.

  1. Special Resident Retirement Visa (SRRV)
    Non-Immigrant Multiple-entry Visa and permanent Residency

  2. IMMIGRANT VISA - Quota Visa
    Only 50 applicants are approved annually for other categories of aliens whose countries accept Filipinos as immigrants on a reciprocal basis. The Philippine Consulate General receives the completed immigrant visa application with enclosures indicated below and, in turn, is forwarded through the Department of Foreign Affairs (DFA) for appropriate action by the concerned agencies in the Philippines. When authority from the DFA for the issuance of the visa allotting quota number is received, a personal interview with a consular officer will follow prior to the actual issuance of the immigrant visa.

For those single foreigner guys out there, getting married to a Filipina is not such a bad thing?

Apart from discovering that Filipina's have a charm, and shyness about them, they are sexy, brown, warm loving creatures. Once married, there are a couple more options open to a long term stay in the Philippines.

  • Balikbayan Visa
    A Balikbayan is defined as:-
    ● Former Filipino citizens holding foreign passports, including spouses and children traveling with them;
    ● Filipinos who have been continuously out of the Philippines for at least one (1) year; and
    ● Filipino overseas contract workers
    On return to the Philippines, Balikbayan privilege can be requested of the Immigration Officer.

    Valid for 12 Months period.
    There is no cost involved for a Balikbayan Visa (No ACR I-Card either?).

    NB: It is a privilege, not a right!

  1. IMMIGRANT VISA - Non Quota Visa (13A)
    You can apply for a 13A Visa in whatever country you happen to be living in with your Filipina spouce.
    There are some advantages to this, over obtaining one after living in the Philippines.
    ● Permanent Residence Visa immediately (no need to go through 12 Months 'Probationary')
    ● Exemption from customs duties on importation of personal effects worth $7,000
    You have to take some simple Medical Tests and Police background clearance and send it in to a Philippine Consulate or Philippine Embassy within your country of Residence. Depending on country this can take 2-4 weeks for approval. Once approved, you will have 6 months to enter the Philippines......and live in the Philippines hassle-free for good.

There is absolutely no need to leave the country on visa runs, no need to visit the Immigration office every 2 months, but once a year you are required to check-in at Immigration for Annual Insection costing Php330.

As mentioned, obtaining a 13A Visa in the Philippines, requires a 12 Month 'Probationary' Permanent Residence Visa first. There is then a 'Conversion' Ammendment from Probationary to Permanent Resident.

This is the route I took to getting a 13A, since we were married in the Philippines, after settling here from Hong Kong.

The Cost 13A - 12 Months Probationary at that time for me - Total Application/Cert. fees just Php6,436+ Php1500 Express Lane fee (optional).

Cost - Probationary to Permanent Resident = Php3,700 + Php500 Express Lane fee (optional)

You also need (like any foreigner staying beyond 6 months) the
ACR I-Card which cost US$50.

It has just been announced that those Permanent Residents, holders of ICR (Immigration Certificate Residence), only have to renew their ACR I-Card, every 5 years.

The ACR I-Card removes the need to apply for Exit Clearance, and Re-entry Permit, 2 weeks before leaving the Philippines for overseas visit and return with same Permanent Residence status.

This used to be the costs involved (but may have changed with the introduction of the ACR I-Card?):-

- 1st Departure cost = Php2,430 + optional Php500 Express Lane fee
- 2nd Departure cost = Php1,900 + optional Php500 Express Lane fee

I heard it may be possible to pay these Fees in advance, at the Bureau of Immigration and load your ACR I-Card, with the payment, before ones departure date. Doing so will avoid any long waiting lines at the ‘cashier’s booth’ at the Airport, and hopefully payment of the 'Express Lane' Fee? Not sure if BOI, Mandaue have the capability to 'load' ones ACR I-Card yet?

Anyway this is how I got to be 'Permanent Resident' in the Philippines.

NEXT: Early Retirement in the Philippines - How to Afford it?

Monday, April 9, 2007

Living in 'Paradise'

It was not my first trip to the Philippines, as I had made many Business trips - Manila, mainly, but did take a few 'holidays' to Cebu to discover where 'Sha-Sha' came from.

Cebu was the Capital of the Philippines a long time ago, and they have their own dialect - 'Cebuano' or 'Visayan' (Bisayan), unlike 'Tagalog' as spoken in National Capital Region (NCR). Most Philipinos however understand Tagalog, wherever they come from, as they watch many Films and TV shows in Tagalog, as well as singing Tagalog Karaoke songs (of course?).

As 'Engineering Manager - Asia Pacific', I was on a pretty good salary, and could afford to stay in top Resorts back then.

I selected 'Plantation Bay' Resort and Spa, not because it was a bit cheaper than the 'Shangri-La', but because it was a bit different from such International 'chain' Hotels.

But, I was not on 'that' nice 'fat salary' any longer - just this 'Retainer' of US$1,000 a month.

I could no longer afford such 'upmarket' Resorts. I started by staying 1 week @ 'Cebu Marine' Resort in Mactan. After this it was just 1 week in the 'Golden Peak' Hotel (Php1,200 a night if I recall?)

'Sha-Sha' on the previous trip to Cebu we made together about 6 months earlier, had decided to use her life savings (from working abroad 10 years) to put down a Deposit on a 'House & Lot'. This was in a Subdivision, South of Cebu City and was a 120sq m lot, with just a 30sq m 2 bedroom 'bungalow'. She said it was so her daughter could live there, whilst attending San Carlos University.

Well we would all be living there now, and I offered to pay the 2/3 balance on this House/Lot purchase, offered as 24 Interest Free monthly payments of just over Php18K/month. I did not mind, as this was not not much more than renting a decent house - but after 24 months, nothing more to pay!

1st May 2001 - Relocation to Cebu, Philippines.

This American company I was working for - 'Netrix'. promoted me to 'Engineering Manager - Asia Pacific', based in Hong Kong, I relocated in 1997, just before the 'handover' to China.

This was my first experience of the 'Far East', and I enjoyed it - (probably too much, as it led to me getting a divorce from my English wife). I would probably still be in Hong Kong had Netrix not decided to close their Asia Pacific office, when the Telecom recession hit towards the end of 1999. In May 2000, all in the Netrix Hong Kong office, were made redundant.

My boss got together with his ex-boss, and formed their own start-up company - 'Congruent' International Ltd. Basically we were 'outsourcing' our experience, skills, knowledge, as well as extensive contacts, formed over many years in Asia, together with the office, and communications. The Business Plan was, with 3 'clients', each saving 60% of what it was costing 'Netrix', we would be profitable. Sign up more clients,having 'complementary' product offerings, and we really start to make some good money.

Well it was looking good initially having reached profitability within 7 months. But even 60% savings was not enough for some clients, and went bust, or withdrew from the contract with Congruent. However one company, Sonoma Systems, was doing particulary well with their ATM 'migration' products. So much so that 'Nortel' Telecom bought them out. Things got worse, and was on 50% 'defered' salary for more than 6 months. I was spending more than that each month, with the high cost of living in Hong Kong.

(OK, so 9 months after the 'handover', property values slumped, and Rents fell accordingly. I was able to change from US$1,200 a month rent to US$800, and a bigger apartment, closer to central Hong Kong, where I worked).

It was look for another job, or accept 'relocation' to elsewhere in Asia with Congruent. Gone was the 50% Salary, but rather a 'Retainer' of US$1,000 a month plus full expenses, and increased 'Sales Commission'.

I guess it was down to the sexy, brown, and warm loving Filipina, whom I had met in 1998, working as an OFW (Overseas Foreign Worker) for 7 years there as a Domestic Helper. She offered to quit working in Hong Kong, and take me back to her home in Cebu, Philippines and we could live together there together.

So that's how I ended up relocating to 'Paradise', nearly 6 years ago.

My 'Divorce' was finalised in June 2001, and me and 'Sha-Sha' were married in June the following year.