A combination of a relatively high inflation rate and low interest rate discourages keeping money in ordinary savings account. While there had been times in the past that keeping growth or rainy-day money in the bank was a viable option, doing so now reduces the value of the fund.

This year the Philippine inflation rate (from January to November 2020) stands at 2.6%. That means prices in the country increased by 2.6% on the average from January to November this year. Data for December 2020 and for the full year 2020 will yet to be available this coming January.

In essence if you were able to buy P100 pesos worth of goods or services last year, you could buy the same goods or services now for P102.60.

If you look at the table found under Banking > Deposit Interest Rates , you would realize that savings account interest rates as well as time deposit rates are not even half of the inflation rate, and all of them are close to zero. In fact, the real interest rate (interest rate that has been adjusted to remove the effects of inflation) is negative, roughly about -2.3%. That means if you keep your money in these accounts, you lose money by about 2.3% a year in value.

Therefore we should start scouting for alternatives that could offer at least the average inflation rate of 2.6%. Best options for these are unit investment trust funds and real estate investment trusts. We could also consider investing in preferred stocks of blue-chip companies, or common stocks of select companies offering high dividend yields. (See the list of Best Dividend Stocks.)

I will post articles on these in the near future. In the meantime, let’s enjoy the holidays. Happy new year!