Compare tax-free MP2 against a bank time deposit taxed at 20% on interest.
Higher after-tax ending balance
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MP2, tax-free
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Time deposit, after tax
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The tax gap that drives this comparison
On paper a Pag-IBIG MP2 account and a bank time deposit look like cousins: both are low-risk places to park money for a set period and earn a fixed-ish return. The decisive difference is tax. MP2 dividends from the Home Development Mutual Fund are tax-free, while interest on a peso time deposit is hit with a 20 percent final withholding tax that the bank deducts before the interest reaches you. So even at an identical headline rate, MP2 quietly keeps more. This calculator makes that gap concrete by growing the same yearly contribution in both products and comparing the after-tax ending balances.
It is built for the saver choosing where to put a regular annual amount, whether that is a year-end bonus, a chunk of savings, or a planned deposit each year. You set the annual contribution, the term, the MP2 dividend rate, and the bank deposit rate, and the tool tells you which finishes ahead and by how much.
How each side is grown here
Both products are modelled the same way mechanically: your contribution goes in at the start of each year and then grows for the rest of the term, year after year. The only difference the calculator applies is the tax. MP2 keeps its full dividend rate, while the time deposit grows at its rate reduced by the 20 percent final tax. So a 5 percent deposit effectively compounds at 4 percent after tax, which is the lever doing most of the work in the result. The 20 percent final tax on interest is a BIR rule; treat the exact rate as the figure this tool applies and confirm it with the BIR, since final tax rates can change.
PHP 60,000 a year, MP2 against a time deposit
Run the default: PHP 60,000 contributed each year for five years, MP2 at 7 percent and the bank at 5 percent. After the 20 percent final tax, the deposit compounds at an effective 4 percent. The table tracks both balances to the end of the term using the rates this calculator applies.
| End of year | MP2 at 7 percent | Deposit at 4 percent after tax |
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MP2 finishes ahead by about PHP 31,219 on the same money. Part of that is the higher headline rate, but a real slice is simply the tax the deposit lost.
The liquidity cost of the MP2 lock
The numbers favor MP2, but they do not capture the whole decision. MP2 commits you to a five-year term, while a time deposit can be set for as little as 30 days or a few months. If you break an MP2 account early you generally give up the favorable dividend treatment, whereas a maturing short deposit simply rolls over or pays out. So the right read is not "MP2 always wins" but "MP2 wins on after-tax yield, the deposit wins on flexibility." Match the choice to when you will actually need the cash. A practical tip is to keep genuinely short-term money, the buffer you might touch this year, in a deposit or savings account, and send only money you can lock away to MP2.
When a time deposit still wins
Flip the rates and the conclusion can flip too. The comparison hinges on the gap between the MP2 dividend and the deposit rate. If a bank offers a high promo rate and MP2 declares a weak year, the after-tax deposit can edge ahead despite the 20 percent haircut, especially over a short horizon where compounding has little time to magnify the difference. The honest way to use this tool is to plug in a cautious MP2 rate, a notch below recent Pag-IBIG declarations, against the deposit rate you have actually been quoted, rather than assuming MP2's recent run continues. Confirm the current MP2 dividend with Pag-IBIG and the final tax rate with the BIR before deciding.
Is MP2 interest really completely tax-free?
The dividends MP2 pays are treated as tax-free to the saver, which is why this tool grows MP2 at its full rate with no deduction. That is different from a deposit, where the bank withholds 20 percent before crediting interest. The exemption is a feature of the Pag-IBIG MP2 program rather than something you file for, but confirm the current treatment with Pag-IBIG.
What rate should I assume for the bank side?
Use the gross rate the bank quotes, not the net, because this calculator applies the 20 percent final tax for you. If a bank advertises 5 percent, enter 5, and the tool grows it at the after-tax 4 percent. Entering an already-net figure would double-count the tax and understate the deposit.