A Query on Interest Rates

A short post today...

While I was going around a few sites, working with the financial tools they had to offer, I had a query on differences on interest rates (Read “Understanding interest rates“) “ING DIRECT pays 1.35% interest on savings. So it means that for every $100 saved, I get $1.35 which has a much greater purchasing power than 4% of interest that we get which amounts to INR 4 for every INR 100. Why is it so? Why do we get such a poor deal when it comes to interests? It’s like $1.35 can get you an e-book for that matter, and INR 4 will literally get you peanuts or just pay half the price of a public bus ticket in Calcutta.

Here’s the explanation team-member, Mikky offered. You can read on if you ever had a similar doubt.

Interest is nothing but value of money.  It simply reflects the purchasing power your country’s currency has.

This concept also deals with something called convertibility INR creates far lesser force in the market than your dollar. But eventually, $100 is INR 6000, and 1% interest is INR 60. 

Because the convertibility of the dollar is high and it’s more fluidic in the market. Since, a dollar can be used to make more money, the bank is willing to give more. A rupee can’t. So our banks can’t pay as much. And this is all shown by your exchange rate. Read “What are Exchange Rates?