Metropolitan Bank and Trust Co.’s researchers share tips on how to protect funds from inflation, as consumer prices in the Philippines remain elevated this year.
“If you have a P50 bill, you will know that years ago, this could have bought you a decent meal with chicken and rice at a certain fast-food restaurant. Now, this same amount could just afford you sides like one order of regular fries,” according to the June 2023 Metrobank Bulletin.
“This is the effect of inflation. Inflation is the general increase in the prices of goods and services over time. In other words, inflation makes you spend more on the same item today than you did a few years ago because prices generally increase,” it explained.
A cup of coffee would cost buyers a lot more in 2023 than in 2017, it said.
“Inflation is troubling if your salary or income stays the same throughout the years. This would force you to live frugally, lessen your expenses and be more wary of what you’re buying,” Metrobank said.
“If your money is not invested or placed in any interest-earning financial assets, then you’re in a way ‘losing money’ over time. Your savings can buy less and less of the same amount of goods because of inflation,” it said.
“Meanwhile, if you have investments and the inflation rate is higher than the interest rate you are earning from these, you are also in effect losing money because a high inflation rate has adverse effects on asset prices,” it said.
Metrobank said if someone keeps his or her money under the pillow or bed, then its value depreciates due to inflation. If it is put in a savings or time deposit account, it can grow a bit by earning some interest. But if it is invested in financial instruments like Unit Investment Trust Funds (UITF), then the magic of compound interest happens, which means the investor will see the money grow exponentially.
Compound interest is the interest on money calculated on both the initial principal and the accumulated interest from previous periods. Simply put, one can earn “interest on interest,” which will make the money grow faster than simple interest.
“Investing in this type of product will help give you better protection against inflation,” it said. “To sum it up, climbing inflation rate reduces the value of your money over time, so it is important to be mindful of how you manage and grow your money amid a rising inflation environment.”
Metrobank to protect funds from inflation, people should hink long-term. Instead of keeping money idle at home, consider placing them in compound-interest earning financial assets like Unit-Investment Trust Funds or UITFs.
UITF is a collective investment scheme where money is pooled from various investors and invested collectively by professional fund managers in different high-yielding financial instruments. They do not earn through a fixed-interest rate but grow in value depending on the assets it carries and the market.
However, UITFs also carry a risk of going down in value as the market moves so one has to be ready to take in the punches from a volatile market environment.
“But since you are investing for the long term, don’t rush in taking out your money. Just observe the market, learn how your fund performs, see how you can better strategize on your investment,” it said.
Metrobank said it offers a wide range of UITF products that can match one’s investment objective, risk profile and preferred time horizon.
One can also consider keeping his or her money in time deposits. Like a savings account, a time deposit earns a fixed interest on funds, which is typically higher than the interest rate of a regular savings account.
However, the money in a time deposit must be held for the fixed-term to receive the interest in full. Typically, the longer the term is, the higher the interest rate one will receive.
With Time Deposit, one needs to wait for the maturity date to withdraw the money, otherwise, it will incur fees.
Metrobank said there are Time Deposit products that offer very flexible terms. This includes Metrobank’s Online Time Deposit product which allows one to earn an interest rate of up to 4.5 percent per annum on their money.
“Investing your money wisely is easy with this offer, as you can avail this with just a P10,000 minimum placement and enjoy flexible terms from 1 month to 1 year,” the bank said.