Term Investments

Term Investments

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Term Investments are deposits lodged for a fixed-term, earning a fixed rate of interest for the agreed term. Unlike savings accounts, term investments are liable for income tax. Accordingly, withholding tax, at the appropriate rate, must be deducted by the Bank from the gross amount of interest payable and forwarded to the Inland Revenue Department at the end of each month. Apply Online Contact Us

Completing the application for Term Investment

The depositor must complete and sign an Application for the Term Investment showing the chosen options for amount, term, and method of payment of interest, maturity instructions, and indicating source of funds and residency status.

The Investment officer must take reasonable steps to satisfy himself or herself as to the true identity of the person who want to open a Term Investment Account.

(Refer Anti Money Laundering Policy section 3 for further requirements).

Amount

The minimum amount for a TDB Note is $1,000.

TDB Bond is no longer issued.

Term

The depositor is to nominate the chosen maturity date. Term Investments will not be accepted for less than 30 days term.

The acceptable terms are:

  • interest paid at maturity and six monthly for maturity over six months
  • 30 Days
  • 90 Days
  • 180 Days
  • 1 year
  • 1.5 Years
  • 2 Years
  • 3 Years
  • 5 Years

Interest Payment Options

Interest payments instructions may be chosen from one of three options:

  • compound interest on due dates (add to principal on maturity)
  • Credit interest on due dates to any account with TDB (savings or loans)
  • Issue a cheque for interest on due dates, payable to the depositor or other payee (no fee is charged for issuing TDB Cheque when interest is due)

Maturity Instructions

Maturity instructions may be chosen from one of the three options:

  • renew investment for a further term at the current rate of interest
  • credit proceeds to any account with TDB (Savings or Loans)
  • Issue a cheque for interest on due dates, payable to the depositor or other payee (no fees are charged for issuing TDB cheque when principal is due.)

If the Investment is to be renewed but on other name, the Investment Officer must take reasonable steps to satisfy himself or herself with as to the true identity of the new person.

Refer Anti Money Laundering Policy section 3.4 for further requirements.

Term Investment Certificate

When the application for Term Investment has been approved by the Manager, a Term Investment Certificate is to be prepared (type-written) and delivered to the depositor with a brief advice.

The Term Investment Certificates are Accountable Forms and are to be held under the Manager’s control in a locked container. Cancelled certificates are to be held until the next Audit.

When a Term Investment Certificate is issued, the serial number is to be noted on the Application for Term Investment and in the Register of Term Investments.

If there is a delay in issuing the Term Investment Certificate, a temporary receipt is to be issued.

Advice to Depositor

After the investment has been accepted and processed, the depositor is to be advised by the certificate, confirming the amount, term, interest rate, interest payment arrangement, maturity arrangements (see Section 34.4 for Specimen Letter).

Change to instructions

All changes to instructions (about payment of interest, prepayments, maturity instructions) must be in writing signed by the depositor in accordance with the application/authority. If a depositor telephones to make a request, they should be requested to write to confirm the new arrangements. Alternatively the Branch could write (in duplicate) to the depositor to confirm the arrangements and ask the depositor to sign and return the duplicate in confirmation.

In the absence of written confirmation of changes, the existing written instructions are to be followed.

Interest due date and maturity date

A daily “cumulative term deposit maturity report” is prepared at the end of each business day and be ready with the Treasury Officer first thing in the following morning. This report contains interest due to be paid and maturity of terms.

The Treasury Officer will then reconcile this report and prepare payment of interests that are due and either roll or pay out matured notes.

All Note holders are advised in their certificates to contact TDB within 7 days in advance to advise if their investment are to be redeemed or be rolled over. However for any investments of $100k and above are to be specifically contacted by phone, e-mail or fax by the Treasury Officer for the decisions regarding their investment.

Payment of interest

Interest will be paid on Term Investments at the rate agreed at the time of lodgement for the whole term of the lodgement (but see Section 5.13 Prepayments/Redemption before maturity).

Interest is calculated on the basis of a 365 days year for the actual number of days elapsed from commencement, counting the date of investment, but not counting the date of maturity (where applicable).

The gross amount of interest to be paid should be debited to the relevant General Ledger Account Cost of Term Investments 830.xx.xxx.

Withholding Tax

All payments of interest on Term Investments are subject to deduction of withholding tax according to Part VI of the Income Tax Act (Cap.68). The Bank must deduct the tax from the interest payable and pay only the net interest (after tax) to the depositor. The tax deducted is forwarded to the Inland Revenue Department.

There are two different rates of withholding tax, so care must be taken that the correct rate is used:

  • Tongan residents - 10% of gross amount
  • Non-residents - 15% of gross amount

When each Term Investment interest payment is made, the correct amount of withholding tax is to be deducted from the gross amount of interest due to the depositor and credited to the general Ledger Account withholding Tax Payable 320.2.xxx

Sample calculation:

Gross interest earned by depositor $131.65
Deduct withholding tax at 10% $13.17
Net interest payable to depositor $118.48

Transaction required:

Debit Cost of Term Investment Account $131.65 Dr
Credit Depositors Account $118.48 Cr
Credit G/L Account Withholding Tax payable $13.17 Cr
Total (Dr & Cr) $131.65

A monthly return is to be forwarded to Head Office as at the last day of each month showing each Term Investment interest payment during the month and the amount of withholding tax deducted.

Head office will clear the General Ledger Account monthly and will remit the accumulated funds to the Inland Revenue Department.

Procedure at maturity

At maturity, repayment of the investment amount and payment of final interest are to be processed according to the instructions given on the Application for Term Investment.

Care must be taken to follow the customer’s latest instructions, if earlier instructions have been countermanded. Any changes to instructions must be in writing, signed in accordance with the authority held.

Wherever possible, the opportunity should be taken to retain the funds for TDB by contacting the depositor about a month ahead of the maturity date to discuss possible investment opportunities and to indicate likely interest rates. It is important that the depositor understands that interest rates are subject to change, and the rate applied to re-lodgement will be the Bank’s official rate on the date of processing the new Application for Term Investment.

Where no re-investment instructions are held, the fund will be automatically rolled at similar terms at existing carded interest rates.

Prepayment/redemption before maturity

The Bank will consider early repayment of Term Investments for genuine reasons upon written request from the depositor. Where such a request is approved, penalty interest and early redemption fees provided in Section 36 Fees for various level of investment

The Bank is not obliged to provide early repayment of term investments, although the customer’s requirement should be considered favourably where possible.

The request must be approved personally by the Manager, who should consider the genuineness of the request, the Bank’s funding and cash positions. Early repayments may be deferred, if considered desirable, especially to meet the Bank’s likely cash requirements.

Interest payable where the term has been broken will be adjusted to a rate of interest provided in Section 36 Fees.

 

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