7% interest on saving account

Lota of new advertisements on television on YES bank giving 7% interest on zavibgs accounts.

This is much higher than what we get from the higher end banks like Hdfc(4%).

These rates are really good.. Almlst doubling the interest that we earn from our accounts.

Its a good time to shift

Its just simplefinancialsense

We are living in a delationary savings environment!!

Deflation is what our fixed income savings are presently going through. Deflation means that the price of the commodity ( in this case of our money) is reducing.

Actually speaking deflation is used for reduced commodity prices, but I am specifically using the term here for you to understand that today you are giving money to banks to keep money with them. How?

Real interest rate is the differential between the interest rate that you earn on your money ( we are talking fixed income here) and the rate of inflation in the economy.

Today for investing in a 5 yr deposit with any bank , you are paid  8 % per annum. The rate of inflation in todays economic condition is running at 10%.

Hence the your money earns 8- 10 = - 2% real interest !!

so for every paisa that you keep in the bank , you actually are paying them 2 % to keep the money with them!

Not good at all, the government and everyone else has been praying that the inflation rate comes down . The RBI has already taken some steps to increase interest rates in the economy and hence bring down inflation.

Usually such a situation doesnt continue for long. Real interest rates need to balance out.

It is quite a contradiction. Some of the economies of the world are facing deflation ( the US being one) and others are facing Inflationary pressures, mostly the emerging markets.

For people who are in the US or developed world, the interest rates in India are quite attractive compared to the low interest rates scenario in their countried. It would augur them well to invest their money in NRI accounts which gives them at least twice the interest rates vs the US at Zero risk! If you havent yet opened an NRI account- please do so immediately. Invest for the lower time frame, because interest rates are on the way up in India!

For others in India, with almost a zero percent increment in the last fiscal for a lot of the companies in the IT or export sector, you should ensure even more carefully that every penny is sweating it out and earning some good returns on your hard earned money.!!

Take Care!

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Interest Rates heading Northwards!

A couple of banks stopped their low interest rates schemes called "teaser loans" for mortgages. Feb 28th was the last day for the special 8.25% loans from ICICI bank and HDFC ltd.. Actually the expectation in the market was that this would be extended for another couple of months.

So, Why did the banks withdraw these loans?

This has to do with the fact that the RBI has raised the SLR which indicates that the central bank is trying to reduce the liquidity in the system. This is the first action of many that the central bank is expected to take over the next few months.

What this has also done is that it has forced the banks to raise the deposit rates on FDs for investors ( HDFC has raised the rates as of now).

But the trend is up for interest rates.

So what should we be doing now.

1. Get into any fixed loan schemes ( like I did with HDFC for my house loan) if you are planning for any.

2. There should be good opportunities for CD ( Company deposits) which may be coming out.

3. Fixed deposit rates should be heading up so wait for the interest rates-- dont get into long term FDs- five years etc.

4. Look out for debt funds which may be medium term funds--- they should be going up.

5. Some of the rate sensitive industries may be impacted--Autos, real estate -- so buy them with any short term correction-- their demand will not be impacted too much.

Happy investing.

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