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Monday, October 25, 2021

Inflation: The money deposited in the savings account is losing money, how? Understand with this formula

Return on savings account: Interest rates on savings account are also between 2.75 per cent and 4 per cent.

Real Rate of Return: The Reserve Bank of India (RBI) has not made any change in the repo rate in the Monetary Policy issued in April. However, since February last year, the RBI has cut interest rates considerably. After this step of RBI, banks are also continuously cutting interest on deposits. In 2015, while FDs used to get 8.25 per cent annual interest, now it has been around 5.75 per cent to 6 per cent. At the same time, the interest rates on the savings account have been between 2.75 per cent and 4 per cent. In SBI, there is only 2.75 percent interest on the remaining account, then 4 percent in the post office. In such a situation, if you look at the rising inflation, then by keeping the money in the bank’s savings account, only loss is being done.

Savings account for everyday expenses

Datar keeps money in savings account for daily expenses or as an emergency fund, so that it can be withdrawn when needed. But do you know how much you have to bear in terms of inflation by keeping money in a savings account. In terms of inflation, the savings account has to bear double loss in terms of returns. One, the returns are very low, the other is adjusting from inflation, then this return goes into the negative.

How is loss on the surviving account

Here you can calculate the actual return on your savings with a formula, in the language of finance it is called real rate of return.

What is this formula

Real Rate of Return = [(1+नॉमिनल रेट)/ (1+महंगाई)] -1

Now here you can check it according to the interest received at different banks.

State bank of india

Interest on savings account: 2.75 percent
Current Inflation Rate (CPI): 5.03 percent
Real Rate of Return: [(1+2.75)/ (1+5.03)] -1 = -2.171

ICICI Bank

Interest on surviving account: 3.50 percent
Current inflation rate: 5.03 percent
Real Rate of Return: [(1+3.50)/ (1+5.03)] -1 = -1.457

HDFC Bank

Interest on surviving account: 3.50 percent
Current inflation rate: 5.03 percent
Real Rate of Return: [(1+3.50)/ (1+5.03)] -1 = -1.457

Punjab National Bank (PNB)

Interest on Savings Account: 3.00%
Current Inflation Rate (CPI): 5.03 percent
Real Rate of Return: [(1+3.00)/ (1+5.03)] -1 = -1.933

Bank of Baroda

Interest on Savings Account: 3.00%
Current Inflation Rate (CPI): 5.03 percent
Real Rate of Return: [(1+3.00)/ (1+5.03)] -1 = -1.933

what should be done?

Expert says that it is better to keep funds in emergency account only for emergency. In comparison, investors should invest in a safe scheme that gives better returns. There are other small savings schemes such as FD, NSC, KVP, time deposit schemes. At the same time, debt funds are also schemes with maturity of 1 day to 6 months, such as overnight fund, liquid fund, ultra short term fund, short term fund.

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Nisha Chawlahttps://www.businesskhabar.com/
She is an expert in Banking, Finance and working with an international bank. She sharing her ideas and knowledge with Business Khabar.
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