Interest rates play a crucial role in our financial decisions, especially when it comes to investments. Let’s
simplify how changes in interest rates can impact your money and help you make informed decisions.
What Are Interest Rates?
Interest rates are like the price of borrowing money. When you take a loan, the lender charges
you interest. Similarly, when you invest, such as in Fixed Deposits (FDs), you earn interest.
When Interest Rates Increase
Better Returns on Fixed Deposits:
Higher interest rates mean higher returns on FDs, savings accounts, and other fixed-income
investments. Your money grows faster in these investments
Costlier Loans
On the downside, loans like home or car loans become more expensive. People might
spend less, which can affect businesses and stock market investments.
Impact on Bonds:
If you invest in bonds, higher interest rates can lower their value. This is because new bonds
will offer higher returns, making old ones less attractive
When Interest Rates Decrease
Lower Returns on Savings:
FDs and other fixed-income investments will offer lower returns. You may need to explore other
investment options to grow your wealth.
Cheaper Loans:
Borrowing becomes affordable, encouraging people to spend more. This can boost businesses and
stock markets, making it a good time to invest in equities.
Bond Values Go Up:
Existing bonds become more valuable because they offer higher returns compared to new
ones issued at lower rates.
How to Handle These Changes
Diversify Your Investments:
Don’t put all your money in one type of investment. Spread it across FDs, stocks,
bonds, and mutual funds.
Understand Your Goals:
If your goal is short-term savings, stick to FDs or savings accounts. For long-term
growth, explore equities or mutual funds.
Stay Updated:
Keep an eye on changes in interest rates announced by the Reserve Bank of India (RBI). It
helps you plan better.
