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investing and compounding interest
A Pag-IBIG MP2 account stops earning regular dividends after five years, but a committed investor can opt to place the sun in a renewed five-year MP2 account.
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Compound, lump, forget: How to get the best results for your money with Pag-IBIG's MP2

Halee Andrea Alcaraz (Philstar.com) - February 27, 2021 - 10:19am
The following does not constitute investment advice.

Once a beginner investor decides to keep her money for at least five years under Pag-IBIG's MP2 Savings scheme, there are ways to maximize the potential for her funds within the program.

1. Forget.

It might sound counterintuitive because, as we mentioned in our second of three reports on Pag-IBIG's MP2 Savings program, one should be committed to following the top-up schedule of any program, vehicle or asset one chooses, be it monthly, quarterly or yearly.

Stock trader and personal finance speaker Marvin Germo said that investors should consistenly set aside money for it but also commit not to touch the capital and its returns.

The more conscious people are about their investments, the higher the chances they will use the money for something else other than their previously set goals, he said. The MP2 program, for one, has a five-year maturity which locks in the money and additional contributions for that period of time.

2. Compound.

Compounding interests is a key concept in investing. It means that both principal amount and the accumulated interest, or in this case dividends, will be larger if increased regularly.

"Compound interest can be thought of as 'interest on interest,' and will make a sum grow at a faster rate than simple interest, which is calculated only on the principal amount." — Investopedia

If, for example, you choose to invest P1,000 monthly starting 2014, you would be able to retrieve around P69,146* from the MP2 program upon its maturity in 2020 if the average annual interest rate of 7.1% is considered. This is compared to the P60,000 amount one would retrieve in five years if it was placed in a regular bank account.

Year MP2 Savings Dividend Rate
2020 6.12%
2019 7.23%
2018 7.41%
2017 8.11%
2016 7.43%
2015 5.34%
2014 4.69%
2013 4.58%
2012 4.67%
2011 4.63%

3. Lump.

But what if you don't want to invest monthly but instead put a one-time amount into the program as an initial principal? This could happen if you have a sudden windfall, such as a performance bonus from your company that you don't need to spend. Calculations show that MP2's compounded annual dividends would yield better results for a larger one-time contribution.

If in 2014, you placed, say P60,000, under the MP2 program and left it there without topping it up, you could reap around P84,547* by 2020 considering the 7.1% average annual dividend rate.

4. Repeat.

A Pag-IBIG MP2 account stops earning regular dividends after five years. Germo said that if he were to invest in the program, he'd take the amount and dividends upon maturity and reinvest the sum in a renewed MP2 account for another five years.

The savings, in effect, will grow further because of compounding interests, Germo noted.

Let's consider two cases:

Case A

The MP2 investor who topped up P1,000 monthly for five years decides to renew with the program after withdrawing her savings plus dividends of P69,146. She then commits to continuously fund it with P1,000 monthly for the next half-decade.

She could expect that by the end of another five-year period, she'd see her savings balloon to P166,581* using the historical average dividend rate** of 7.1%.

Case B

Another MP2 investor who doesn't prefer to fund it monthly renews her account for another five years. She takes the P84,547 amount and places it into the program for another half-decade, again without topping it up. How much could she expect to receive after the second maturity period? An easy P119,136*, again using the historical average dividend rate**.

But what if after the first five years, she has a fresh P60,000 in lump sum to add to her renewed MP2 investment? She would have an initial P144,547 (P60,000 + P84,547). It could grow to a whopping P203,683 by the end of the second MP2 maturity period just by letting it sit there**.

Germo said that if one plans to see the actual impact of the program, continuing to invest the money after the five-year maturity periods would be "the best thing to do."

It could be a vehicle for a do-it-yourself retirement package to lean on in the long term.

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Saving through the MP2 program can be done in two ways:

1.  Voluntary

One can opt to voluntarily pay the desired MP2 contribution over the counter at any Pag-IBIG branch. There is also the option of paying through participating payment centers such as GCash, 7-11, Bayad Centers, ECPay or M. Lhuiller.

Meanwhile, those residing abroad or overseas Filipino workers can pay their contribution through Pag-IBIG’s international partners, including PayPilipinas, Philippine National Bank, Asia United Bank and iRemit.

MP2 investors may also use online payment channels such as PayMaya, Gcash, Coins.ph, Dragonpay or Paypal.

2. Salary cut

Just like the Pag-IBIG MP1 program, MP2 contributions can be paid through salary deductions as agreed upon with one’s employer.

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*We factored in an annual interest rate variance range of ±2% in this computation.
**In reality, this annual dividend rate changes every year.

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Read the two previous The Budgetarian reports on the MP2 Savings program:

EMERGENCY FUND PAG-IBIG MP2 PERSONAL FINANCE SAVINGS ACCOUNT
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