Effective July 1, 2025, the Philippine government rolled out a flat 20% final withholding tax (FWT) on all interest income from bank deposits. Yes, kahit anong klase pa ’yan—regular savings, time deposits, or foreign currency accounts—basta may interest, may bawas na agad.
As someone who’s trying to grow my ipon kahit pa-konti-konti, I knew I had to dig into this. Kung nag-iipon ka rin sa banko, this article is for you.
What Changed?
Before CMEPA (Capital Markets Efficiency Promotion Act), here’s how the tax system worked:
OLD TAX SYSTEM (Before July 1, 2025):
| Type of Deposit | Tax Rate |
|---|---|
| < 3 years (peso) | 20% |
| 3 to <4 years | 12% |
| 4 to <5 years | 5% |
| ≥ 5 years | 0% (tax-exempt) |
| Foreign Currency Deposits | 15% |
NEW TAX SYSTEM (Effective July 1, 2025):
- Flat 20% tax on all interest income
- Wala nang exemptions for long-term deposits
- Applies to both peso and foreign currency accounts
In short: lahat may tax na, kahit na dati ay tax-free ang long-term time deposit mo.
Why Did the Government Do This?
Ayon sa Department of Finance (DOF), the new law aims to:
- Make the tax system fair for all savers
- Remove loopholes na nakakalamang ang big depositors
- Encourage investments outside just long-term bank savings
- Align the Philippines with global tax standards
DOF also clarified: this isn’t a new tax, most people were already paying 20%. It’s just that now, everyone pays the same rate.
Let’s Look at a Real-Life Example
Let’s say naglagay ka ng ₱100,000 in a 5-year time deposit earning 4% per year:
Old Rule (0% tax):
₱4,000 × 5 years = ₱20,000 net income
New Rule (20% tax):
₱4,000 − 20% = ₱3,200/year
₱3,200 × 5 = ₱16,000 net income
So in total, you lose ₱4,000 in taxes—money na sana dagdag sa emergency fund or grocery budget.
What Savings Are Still Tax-Free?
Good news, not all savings products are affected!
Here’s what’s still exempt from the 20% tax:
- Pag-IBIG MP2
- SSS Provident Fund / WISP
- GSIS savings
- Some co-op savings (depending on status)
If you’re looking for tax-free, government-backed savings, MP2 remains one of the top options for many Pinoys.
Who’s Most Affected?
- Long-term depositors – especially those with 5-year time deposits
- Middle-class savers – who use banks as a safe place to grow their money
- Small investors – who prefer low-risk placements but are now earning less due to tax cuts
Some critics even say this discourages saving in the long run, since the “reward” (interest) is now smaller.
What Can You Do Now?
Here are a few simple steps to adjust and make better financial moves:
- Review existing deposits – If placed before July 1, you’re still under the old tax rule until maturity.
- Recompute your expected earnings – After tax, sulit pa ba ang bank deposit mo?
- Consider MP2 or SSS WISP – Still tax-free and higher potential returns.
- Explore alternatives – Mutual funds, UITFs, or even dividend-paying stocks.
- Stay diversified – Wag lahat sa banko, especially if mababa na nga ang interest, may tax pa.
Final Thoughts
Hindi ito “end of the world” for bank savers—but yes, it’s definitely a wake-up call. With lower net interest and higher taxes, we need to be more strategic about where we place our money.
If before we relied on long-term deposits for tax-free gains, ngayon, we need to look for more efficient, tax-smart savings and investments.
Save smart. Ipon pa rin. Pero this time, mas wais.
Tipid Tip:
If your bank only gives 1.5–2.5% interest (worst if it’s regular savings which is only 0.065%), tapos may 20% tax pa? You might be earning less than ₱200/year on ₱10,000. Consider moving part of your money to Pag-IBIG MP2—higher returns, tax-free, and government-backed.