Interest rates very high in India; people prefer cash now instead of tomorrow

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In my (home) country, the Netherlands, interest rates reached a record-low when one of our banks, Triodos Bank, announced that the interest on savings would be decreased to 0%. Some western economists have predicted that it will increase even more in the future, leading to a negative interest on savings. The result? You could end up paying your bank to take care of your money, instead of receiving a reward for your investments. Luckily the interest rates are also very low on mortgages. If you take out a mortgage now with a 10-year fixed interest, you might pay as little as 1,5-1,8% interest. It is obviously very low! Unfortunately there is a high risk involved, because the interest rate could climb very steep which would result in a very high interest after 10 years. What a difference when compared to India! The first thing which I noticed when I entered my new bank in India? My bank, funnily the Deutsche Bank, offers very high rates on savings. You could easily get up to 6-7% interest on the money that you deposit at the bank here. The downside; mortgage rates are very high as well, which makes India a great country to live in if you have a lot of money and challenging if you don’t. I’m not an economist, nor a specialist in interest rates so I leave the precise explanation to the specialist. However, I do read the papers and I also found some info on ‘the net’ (talking about the internet, people in India tend to talk about ‘the net’). What does it say? To be very honest, I thought that putting money in an Indian bank account would make me rich. But there is more. And we should start with the most important one, inflation. The inflation in the European Union is very low and it is even lower in the Netherlands. At some point in 2016, the inflation was even 0%. It increased in 2017, we now have an inflation rate of approximately 1%. The inflation in India is much higher, during some periods in 2016 it was as high as 6%. So, what about the savings account with 6-7% interest? You will end up with a lot of profit when the year ends. But if you want to spend your money on goods or services, you will notice that a lot of things are more expensive. And there is more! 100 Indian Rupee does not always have the same value. If you want to convert Indian Rupees to Euro’s, you will get less Euro’s than – for instance –  a few months ago, when the Indian Rupee was very expensive to buy.

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