Savings alternative

Starting today, the Bureau of the Treasury will be offering to the public so-called “premyo” bonds that earn interest and at the same time entitle the buyers to join a quarterly raffle and win up to P1 million in cash.

The bonds will target small investors, as the debt paper will be sold in denominations of P500, with each investor allowed to invest a maximum of P10 million. This cap will allow the participation of as many small investors as possible. The Treasury will issue a minimum amount of P3 billion worth of one-year peso-denominated Premyo Bonds Para Sa Bayan. The amount can go up depending on demand.

The bonds will be launched today at the state-run Development Bank of the Philippines, one of the six joint coordinators of the offering. The other joint coordinators are Land Bank of the Philippines, BDO Unibank, China Bank, Philippine National Bank, and First Metro Investment. Landbank will sell the bonds online, while other banks will offer the debt paper over the counter.

The public offer period is from Nov. 25 to Dec. 13 and the issue date is on Dec. 18. During the quarterly raffle, the Treasury will draw one winner of P1 million, 10 winners of P100,000 and 50 winners of P20,000. These prizes may not be that big to corporate investors and high net-worth individuals, but this exercise is targeting the middle-income segment to encourage them to save. Instead of buying the latest electronic items such as mobile phones or game consoles that will depreciate in value as they become obsolete, the public is being offered these bonds as a better gift idea this Christmas season.

They are, in fact, essentially better than the lottery conducted by the Philippine Charity Sweepstakes Office or PCSO. Money spent on lotto tickets is gone after the draw. Money invested in the “premyo” bonds remains intact. And the money invested in the bonds is guaranteed to earn. The Treasury has set an interest of 3 percent for the bonds subject to a final tax of 20 percent.

That interest rate is way better than saving one’s extra money in banks, too. Savings rates remain very depressed, especially for small amounts put in savings deposits. Rates on savings are below 1 percent, and many banks don’t pay interest on savings below their minimum requirement of anywhere from P10,000 to P50,000.

The interest rate on the bonds is also higher than the current inflation rates. This means one’s money invested in the “premyo” bonds is not eaten away by the increase in consumer prices. Inflation for the past few months has been markedly low, hitting 1.8 percent in July, 1.7 percent in August, 0.9 percent in September and falling to a three-year low of 0.8 percent in October. With inflation forecast to remain below 3 percent in the coming year, investors in “premyo” bonds are assured that their savings will not be whittled away by consumer price increases.

Aside from all these, investors also have the chance to win in the quarterly raffle without having to lose the amount they invested. The odds of winning the P1 million prize may be very low, but the luck factor is available to every consumer and for every “premyo” bond bought.

If one invests P100,000 in “premyo” bonds, for example, total earnings after a year will be P2,400 (3 percent or P3,000 minus 20-percent tax), plus 200 bonds that are entitled to the quarterly raffle.

Had the government made the interest earnings tax-free, the added incentive for potential buyers of these bonds would have been bigger. But one hopes the lure of earning higher than savings in banks, plus the luck factor of possibly winning from P20,000 to a maximum P1 million every quarter, will make Filipinos with a little money to spare to buy these bonds for themselves or their children as a more enduring and useful Christmas gift.

The “premyo” bonds program should hopefully restart a nationwide savings campaign that targets especially the salaried sector, instilling in them the benefits of having money that can be tapped into for that proverbial rainy day, sparing them from having to resort to usurious lenders, and, in time, helping improve the overall level of savings and financial stability among a greater number of citizens.