Investing 101: What You Need to Know About LTNCD (Long-Term Negotiable Certificate of Deposit)
Diving into the world of investing is a challenge in itself; making money is even harder. For newbies, deciding where to start is enough to get their forehead veins popping. The solution? Research–getting the right information about the topic could spell the difference between gains and losses.
Long-Term Negotiable Certificate of Deposit, or LTNCD, is a hybrid bank product touted to be a safe long-term investment you should consider adding to your portfolio, and a great first investment for investing greenhorns.
What are LTNCDs?
An LTNCD is a bank product offered to investors looking for a relatively safe investment, but with higher interest rates than a regular savings account or short-term time deposit.
As mandated by the BSP, LTNCDs are to be denominated in Philippines Pesos, have a minimum maturity of 5 years, be scripless in form, and registered with a third party Registry Bank maintaining an Electronic Registry Book.
Breaking Down the Acronym
Beneath the mouthful (and downright confusing) investment term lies a fairly uncomplicated asset class you could definitely add to your portfolio for diversification. Let’s zoom in on each word.
Long-term: maturity date usually comes after 5 years or so.
Negotiable: can be sold in the secondary market, even before maturity date.
Certificate of Deposit: like a Certificate of Deposit (CD), LTNCDs also earn interest, and is a debt instrument.
Deposit: as a bank deposit product, it is insured by the PDIC. It is a hybrid product in a sense that much like a time deposit, it is issued by a bank and is covered by the PDIC. Like a bond, it is negotiable, long-term, and has quarterly interest payments.
Difference Between Time Deposit and LTNCD
A regular time deposit can mature within a month or up to 7 years, is non-transferable while outstanding, and can be pre-terminated (although subject to a penalty fee). LTNCDs take a minimum of five years or more to reach maturity, can be sold to the secondary market at the prevailing market price, and cannot be pre-terminated prior to maturity.
Why Invest in LTNCDs
Higher yield/Low risk. Rates on an LTNCD are higher than short term deposits. The yield on the LTNCD is assured if you hold onto it until maturity. As a bank product, LTNCDs are covered by the Philippine Deposit Insurance Corporation on a maximum insurance coverage of up to P500,000 per depositor.
Tax-exempted. Individuals who purchased the LTNCD from the primary market will be tax-exempt, provided that they hold the LTNCD for at least 5 years.
Negotiable. It can be sold to the secondary market even before reaching maturity at the current market price.
Steady cash flow. Investors receive interest payments on a quarterly basis.
Frequently Asked Questions
Can I invest in an LTNCD?
Generally, any person or entity may purchase LTNCDs. However, there may be exceptions depending on the issuer.
How much is the minimum investment?
Usually, the minimum investment is PhP50,000 with increments of PhP10,000 thereafter.
Are LTNCDs insured?
Yes. LTNCDs are insured by the PDIC for a maximum of P500,000 per depositor.
Is there a tiered or incremental interest rate?
No. There will be a fixed coupon rate throughout the life of an LTNCD.
Can I still purchase after the initial public offering?
Yes. An investor can still buy LTNCDs from the secondary market, subject to brokerage and other fees.
If you’re looking for an investment option that’s low-risk, has a higher interest rate than similar bank products, and willing to go for it for the long-term, then LTNCDs might be your cup of tea.
Source: Security Bank