Number and Algebra

Savings: bank account, time deposit or MP2?

Financial mathematics

Pag-iipon: bangko, time deposit o MP2?

Where should a first salary go? Compare a passbook account, a time deposit, a digital bank and the Pag-IBIG MP2 program using interest and tax.

Where it fits

Compound Interest · Term 3 · Week 1
Sequences in Finance · Term 1 · Week 5

Competencies

gm11.t3.w1.c1 Solve problems involving compound interest, including maturity value, future value, nominal rates, and number of terms.
gm11.t1.w5.c2 Determine the accumulated values of investment over time using sequences and series.

The data

₱20,000 saved for one year
Option	Rate per year	Compounding	Tax on interest	Value after 1 year
Passbook savings	0.10%	Quarterly	20%	₱20,016
Time deposit (1 year)	4.0%	At maturity	20%	₱20,640
Digital bank	4.0%	Monthly	20%	₱20,652
Pag-IBIG MP2	7.0% (dividend)	Yearly	None	₱21,400

Value after 1 year by Option

Source: Representative 2026 figures for classroom use; check current official rates before using for real decisions. Rates are typical advertised ranges; MP2 dividends vary yearly.

Scenario and worked example

Ate Liza's first ₱20,000

Engage

Liza just finished TESDA training and saved ₱20,000 from her first job. Her tita says 'put it in the bank', her kuya says 'MP2', and an ad promises 4% at a digital bank. Which advice is right, and how much difference does it make?

Worked example: time deposit after tax

Explain

I = 20{,}000 \times 0.04 \times 1 = 800

\text{Tax} = 0.20 \times 800 = 160

\text{Net} = 20{,}000 + 640 = 20{,}640

Compounding monthly

Explain

The digital bank compounds twelve times a year:

A = 20{,}000\left(1+\frac{0.04}{12}\right)^{12} \approx 20{,}814.83

\text{after 20\% tax on the ₱814.83 interest: } \approx 20{,}651.86

Trade-offs beyond the rate

Elaborate

Passbook: withdraw any time, almost no growth.
Time deposit: penalty if withdrawn early.
Digital bank: rate can change; check PDIC insurance.
MP2: locked for five years; dividends are not guaranteed.

Discuss in class

Which option would you choose for an emergency fund? For money you will not need for 5 years?
How much does the 20% tax reduce the gap between a 4% deposit and MP2?
Why do banks pay so little on savings but charge so much on loans?

Problems

5 problems · check your answer, then open the solution

Problem 1 Basic

A regular savings account pays 0.10% per year. How much simple interest does ₱20,000 earn in one year?

Your answer (₱)
Show step-by-step solution
1. $I = Prt = 20{,}000 \times 0.001 \times 1 = 20$ pesos.
2. 0.10% means 0.10 per 100, or 0.001 as a decimal.
Answer: 20 ₱
Problem 2 Standard

A one-year time deposit of ₱50,000 earns 4% per year. Interest is subject to 20% final withholding tax. How much interest does the saver actually receive?

Your answer (₱)
Show step-by-step solution
1. Gross interest: $50{,}000 \times 0.04 = 2{,}000$ .
2. Tax: $0.20 \times 2{,}000 = 400$ .
3. Net interest: $2{,}000 - 400 = 1{,}600$ pesos.
Answer: 1600 ₱
Problem 3 Standard

A digital bank pays 4% per year compounded monthly. Find the value of ₱10,000 after one year, to the nearest centavo.

Your answer (₱)
Show step-by-step solution
1. Monthly rate $i = 0.04/12$ ; $n = 12$ .
2. $A = 10{,}000\left(1+\dfrac{0.04}{12}\right)^{12} \approx 10{,}000 \times 1.040742$ .
3. $A \approx 10{,}407.42$ pesos, slightly more than the ₱10,400 from annual compounding.
Answer: 10407.42 ₱
Problem 4 Basic

Which statement best explains why the Pag-IBIG MP2 savings program grows faster than a regular savings account?

Choices a. MP2 has no tax and a much higher dividend rate b. Banks are not allowed to pay interest c. MP2 is compounded daily while banks compound yearly d. MP2 money cannot be withdrawn, so it is worth more
Show step-by-step solution
1. MP2 dividends (around 6–7% in recent years) are tax-free; a regular savings account pays about 0.1% and the interest is taxed 20%.
2. Compounding frequency matters far less than the gap between 0.1% and 7%.
Answer: a
Problem 5 Challenge Non-routine

At 7% per year compounded annually, after how many whole years will a deposit first be at least double its original value?

Your answer (years)
Show step-by-step solution
1. We need $(1.07)^t \ge 2$ .
2. $(1.07)^{10} \approx 1.967$ (not yet double); $(1.07)^{11} \approx 2.105$ .
3. So the deposit first doubles in year 11. The 'Rule of 72' estimate $72 \div 7 \approx 10.3$ agrees.
Answer: 11 years

Compound interest calculator More practice: Compound Interest More practice: Sequences in Finance