Starting July 1, 2025, Filipino savers are facing a new reality: interest earned from long-term time deposits and peso-denominated bonds is now subject to a 20% Final Withholding Tax (FWT). This shift is part of the implementation of Republic Act No. 12214, also known as the Capital Markets Efficiency Promotion Act (CMEPA). Banks such as Security Bank and UnionBank have already confirmed enforcement.
What Does This Mean for Everyday Filipinos?
Imagine placing ₱100,000 in a time deposit earning 6% per year. That would give you ₱6,000 in interest after 12 months. But under the new policy, the government takes 20% of that earnings — that’s ₱1,200 — leaving you with ₱4,800 net.
While headline inflation has recently eased to around 3%, your real returns are still modest. After taxes, the gains from bank savings are no longer as compelling — and may not be enough to meet long-term financial goals. Traditional methods of saving are slowly losing ground when it comes to wealth building.
Rethinking Traditional Saving: Why Life Insurance with Investment (VUL) Makes Sense
As this new tax eats into savings returns, more Filipinos are turning to smarter strategies that offer both growth and protection. One increasingly popular option is Variable Unit-Linked (VUL) Life Insurance.
What Is a VUL?
A VUL is a two-in-one financial solution: part of your premium provides life insurance coverage, while the other part is invested in professionally managed funds — such as bonds, stocks, or balanced portfolios, depending on your risk appetite.
Why VUL May Be Better Than Traditional Bank Savings:
- Tax-Free Earnings
- VUL investment returns are not subject to final withholding tax, which means 100% of your gains are yours.
- Higher Long-Term Growth Potential
- Depending on market conditions and fund allocation, VUL policies have historically delivered 8% to 12% annual returns — far outpacing time deposit rates.
- Built-In Financial Protection
- In addition to investment growth, VUL policies provide life insurance, and may also offer critical illness coverage and hospital income benefits.
- Encourages Disciplined, Long-Term Saving
- VUL policies foster a habit of regular contributions, promoting long-term thinking and financial responsibility.
Bottom Line: Your Money Deserves Better Growth and Protection
The new 20% tax on savings interest highlights a crucial point: saving alone is not enough. While banks still play an important role for short-term needs and liquidity, achieving long-term financial security calls for more strategic solutions.
If you’re serious about growing your wealth, protecting your future, and staying ahead of inflation and taxes, talk to a licensed financial advisor about how a VUL policy can help you build passive income, safeguard your family, and plan confidently for the years ahead.
