Retail Treasury Bonds, Purchasing the Philippines
Banking
With the hoopla about the European debt crisis, a number of the governments within the Euro area are finding it tough to keep their finances in order. If you live in these countries, it could be risky to lend your money towards the government because default is always a chance. But for us Filipinos, lending money towards the government is an excellent opportunity to earn some interest income.
One method to lend money to the government is thru buying Retail Treasury Bonds (RTB) issued by the Bureau from the Treasury. RTB's are government securities which are considered unconditional obligations of the sovereign state. It's backed by the entire taxing power the government. Therefore, government securities are practically clear of default. In other words, there's hardly any risk in investing in these securities.
Retail Treasury Bonds can be purchased from banks including the Development Bank of the Philippines (DBP). The minimum investment is normally 5000 pesos or more. Interest levels because of these bonds vary based on the term. For example, the coupon interest on the 3-year bond is 8.50% per year but for the 5-year bond, 9.0%. Interests are usually paid over a quarterly basis susceptible to a withholding tax of 20%.
Because of the 20% withholding tax, the 8.5% interest will give a net return of 6.8% while a 9% interest will yield a 7.2% return. These interest earnings, however, are paid immediately for the coupon holder. Hence they don't end up part of the investment principal and would not have a compounding effect. Still they are good returns considering how almost risk-free the securities are.
There are several comparative advantages on Retail Treasury Bonds as a possible investment instrument.
1. Safe - Unless the government defaults on its debt, which rarely happens, the investor is not going to lose his money. The interest rate is not going to change set up market collapses.
2. Liquidity - If you'd like the cash invested, there exists a secondary market where you can sell your RTB's before maturity.
3. Investment Amount - the minimum level of investment will go as little as 5000 pesos. This makes the securities inside the reach of many middle-class Filipinos.
4. Quarterly income - the fixed income payments are made on a quarterly basis rather than One year helping to make the very first 3 payments worth much more than the stated interest because of the added possibility to invest the gains.
Banking
Government borrowings is a sign that projects will probably be underway that needs financing. Hopefully, the money will go to projects that make people's lives better.
With the hoopla about the European debt crisis, a number of the governments within the Euro area are finding it tough to keep their finances in order. If you live in these countries, it could be risky to lend your money towards the government because default is always a chance. But for us Filipinos, lending money towards the government is an excellent opportunity to earn some interest income.
One method to lend money to the government is thru buying Retail Treasury Bonds (RTB) issued by the Bureau from the Treasury. RTB's are government securities which are considered unconditional obligations of the sovereign state. It's backed by the entire taxing power the government. Therefore, government securities are practically clear of default. In other words, there's hardly any risk in investing in these securities.
Retail Treasury Bonds can be purchased from banks including the Development Bank of the Philippines (DBP). The minimum investment is normally 5000 pesos or more. Interest levels because of these bonds vary based on the term. For example, the coupon interest on the 3-year bond is 8.50% per year but for the 5-year bond, 9.0%. Interests are usually paid over a quarterly basis susceptible to a withholding tax of 20%.
Because of the 20% withholding tax, the 8.5% interest will give a net return of 6.8% while a 9% interest will yield a 7.2% return. These interest earnings, however, are paid immediately for the coupon holder. Hence they don't end up part of the investment principal and would not have a compounding effect. Still they are good returns considering how almost risk-free the securities are.
There are several comparative advantages on Retail Treasury Bonds as a possible investment instrument.
1. Safe - Unless the government defaults on its debt, which rarely happens, the investor is not going to lose his money. The interest rate is not going to change set up market collapses.
2. Liquidity - If you'd like the cash invested, there exists a secondary market where you can sell your RTB's before maturity.
3. Investment Amount - the minimum level of investment will go as little as 5000 pesos. This makes the securities inside the reach of many middle-class Filipinos.
4. Quarterly income - the fixed income payments are made on a quarterly basis rather than One year helping to make the very first 3 payments worth much more than the stated interest because of the added possibility to invest the gains.
Banking
Government borrowings is a sign that projects will probably be underway that needs financing. Hopefully, the money will go to projects that make people's lives better.