Starting January 6, 2025, the Inland Revenue Department is introducing a new interest rate for Tax Reserve Certificates (TRCs), dropping from 0.5500% to 0.4250% per annum. TRCs are a helpful tool for taxpayers looking to prepay taxes while earning interest, but with this rate change, it’s important to reassess your financial plans. Here’s a breakdown of what this means for you:
What Are Tax Reserve Certificates (TRCs)?
TRCs allow taxpayers to deposit funds in advance for tax payments. These funds earn simple interest, which is calculated monthly until they are used to pay taxes. However, interest is only credited when TRCs are applied toward a tax payment—there’s no interest if the principal is refunded.
Key Updates to the Interest Rate
- New Rate: The annual rate will be 0.4250% (or $0.0354 per month per $100).
- Applies to Purchases: Certificates bought on or after January 6, 2025, will earn interest at this new rate.
- Historical Trend: The interest rate has steadily decreased since mid-2023, reflecting changes in average 12-month deposit rates from the three note-issuing banks.
What Happens to Existing TRCs?
If you purchased TRCs before January 6, 2025, those certificates will continue earning interest at the rate that was effective on their purchase date. For example:
- TRCs bought in December 2024 will earn 0.5500% per annum until used.
- TRCs stop accruing interest after 36 months, so it’s important to use them before this deadline.
Why the Change?
The rate reduction reflects market trends in deposit rates for large sums, as TRC interest rates are reviewed monthly to align with economic conditions. While this change may slightly reduce the financial benefit of holding TRCs, they remain a practical tool for structured tax payments.
What Should You Do?
- If you’ve been relying on TRCs for prepayments, consider purchasing before January 6, 2025, to lock in the higher rate of 0.5500%.
- Keep track of your TRCs to ensure they are used within the 36-month interest period.
While the interest rate reduction might seem minor, it reflects the current economic climate and serves as a reminder to stay proactive about your financial planning. TRCs still offer a way to manage tax payments while earning some interest—but timing is key.
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