RTBs – Rich Money Habits

How to Invest in Retail Treasury Bonds in the Philippines – Interests and Fees

Last October, I wrote a story on how my wife and I were able to invest in Retail Treasury Bonds (RTBs) in the Philippines. We’ve practically forgotten about it until we received a letter from the bank informing us that they have already credited our settlement account with Bank of the Philippine Islands (BPI) Capital Corporation. We just received our first quarterly interest! 🙂

Here’s a picture of the interest payment we received.

The net amount is just as we expected. Our total investment amounted to PhP 200K with a tenor of 7 years at 7% annual interest. This would translate to an annual interest amount of PhP 14K per year or PhP 3,500 per quarter before-tax. Note that the Gross Amount indicated in the above picture is the same as our computed quarterly interest of PhP 3,500. This amount is taxed at 20% (or PhP 700) which further reduces it down to PhP 2,800. This is the net amount after taxes. This is the amount we expected to receive every quarter for 7 years. Not very exciting but certainly beats the interest on savings accounts. 🙂

There’s one thing I didn’t expect though — fees. Included in the letter are 2 debit transactions which I missed in the fine-print. One is a PhP 7.25 Custody Fee and the other one a PhP 25 Transactional Fee-Security Deposit.

I’m guessing we were assessed with these 2 fees because we purchased the RTBs from a bank, which is basically, a secondary-market. Unfortunately, it looks like these two fees will also be deducted every quarter.

In effect, the PhP 2,800 interest is (again) deducted a total of PhP 32.25 fee which brings down the amount we will receive every quarter to PhP 2,767.75. 🙁

Anyone experienced the same thing or know how these two fees are computed?

Things I learned while investing in RTBs:

1) Invest now.

If we waited until we had ALL the answers, we would still be wondering today how to invest in RTBs. Yes, we were assessed a PhP 32.25 fee that we didn’t expect but the net amount is still better than interest from a savings account or even time deposits. 🙂

2) Read the fine print.

If we’ve read the fine print, we would not have been surprised by these fees. Yes, it may be tedious to go through every form and double check all information indicated in each form, but a 5-minute checking on the fine-prints can save you time (and money) in the future.

3) Don’t be afraid to fail.

We’ve known RTBs for quite some time, but only decided to invest a few months back. We were afraid to fail and lose money. We were content to leave our money sitting idly in the bank via savings or time deposit accounts. Now, our money is working for us, and making us money – even for only a little amount. This money is passive income.

I know that the interest amount is small, but imagine if you’ve invested 10x the amount we invested…it would give you a quarterly “passive” income of PhP 28,000 before tax. That’s around PhP 9,000 every month. If you can live on that income for a month, then you’re practically free! (at least for the tenor of the investment:)) That’s money you did not have to work hard for. That’s money given to you whether you worked at your job or not. That’s money working for you and setting you free.

How to Invest in Retail Treasury Bonds (RTBs) in the Philippines

Are you frustrated from earning too little from your savings account or time deposit? Do you want to find a way to invest your money securely but with relatively higher interest rate? Investing in Retail Treasury Bonds (RTBs) may be for you.

What are Retail Treasury Bonds (RTBs)?

Retail Treasury Bonds (RTBs) are fixed-income securities offered by the government to raise needed funds. The bond maturity period ranges from 2 years to 10 years. They are being sold primarily through the Bureau of Treasury. You can also buy and sell bonds through banks via the secondary or resale market. In the simplest of terms, this is government’s way of “borrowing” money from you. 🙂

How to invest in Retail Treasury Bonds (RTBs) in 3 simple steps?

As first time bond investors, my wife and I didn’t have a clue what a Retail Treasury Bond is, let alone have the courage to actually invest some of our hard earned savings. Surprisingly, investing in RTBs is a very straightforward and simple process. Here are the 3 simple steps we did.

Step 1: Go to your nearest bank and ask if they offer RTBs

Ideally, you would want to go through your local bank where you already have an existing savings account. This will make it easier for you to transfer funds when you “buy” the bonds, and receive your annual “interest” earnings. If you don’t have an existing account with the bank, they will ask you to open one. :)

Step 2: Fill-up the forms and have it notarized

There’s quite a number of forms to be filled up so just take your time. There’s also one document which needs to be notarized to make it legally binding. In essence, this document tells you that the government “owes” you money for the duration of the term and obligated to pay you “interest” based on the “coupon rate”.

Step 3: Pay and wait for the interest to be credited through your bank account.

The payment will be debited from the bank account you provided in step 1 so it is important that you have enough funds in your account. Once paid, all you have to do is wait for the interest to be credited to your account (usually) every quarter until the maturity date. Once the bond matures, the principal will be returned to you and credited to your bank account.

Why invest in RTBs?

RTBs are attractive to investors for the following reasons:

Relatively safe – since it is backed by the “full faith and credit” of the government, it means the government has the power to tax its citizens just to pay YOU. You lose money only when the government collapses and can no longer pay its debts.
Liquid – you can “sell” the bonds through the secondary market any time, even before its maturity.
Minimum investment – some banks offer RTBs at a minimum of only PhP 5,000 (around US $106). Others, usually require at least PhP 100,000 minimum investment. It’s different from bank to bank so ask around.
Regular interest income – since it is a fixed income, you receive the same amount of interest regularly (usually every quarter) until the bonds’ maturity.
Interest is higher than CDs / Time Deposits - interest rates from year 1998 to 2009 ranged from a low of 5% to a high of 21%.

Things to note when investing in RTBs?

The interest you earn is subject to tax (20% in the Philippines).
When the government “really” needs money to pay for its debts, RTBs are offered at very high interest rates (21% in 1998, during the Asian financial crisis).
Generally, bonds with higher maturity period offer higher interest rates.
RTBs are normally “sold out” within 2 weeks after issuance. You can check out the Bureau of Treasury website @ www.treasury.gov.ph for the next schedule of RTB offering or watch out for announcements on the business section of daily newspapers.
Interest from RTBs is NOT compounded so you have to find another way to “reinvest” the interest earnings.