NRE Deposit Rates

To attract foreign currency into India, Indian government has freed the NRE deposit rates. As the global interest rates in banks are very low, more and more non-resident Indians (NRIs) are moving their money into non-resident (external) rupee account (NRE). Compared to FCNR (foreign currency non resident) and NRO (non-resident ordinary) accounts, the interest rates are higher for NRI deposits. The interest earned on NRI deposits is tax free......

Inflation: What Is It And Why Does It Happen?

Inflation is the overall or specific increase in the cost of goods or services. Thank you, Mr. Dictionary.

Inflation is when your mom or dad complains about the prices they have to pay nowadays compared to what they paid when they were younger. "I remember when a roll of Poppins only cost 20 paise." "I used to buy Tur dal at Rs.14/Kg." "When did milk get so expensive?" My Great Grandfather used to get a salary of Rs. 5 per month!!

Inflation in India has been relatively high. It is 10% for the common man. I am not kidding. I am talking about the consumer price index. What comes in the news paper is the wholesale price index which is around 9%. Some countries have experienced inflation above 1000% in a single year. A detailed analysis of the cause of inflation is beyond the scope of this short article, but we can mention some things that tend to cause inflation.

Increases in government taxes and fees can lead to inflation (especially when businesses are taxed). When the cost of business goes up, product prices go up. When prices go up your income effectively goes down.

Also when your personal income taxes, property taxes, sales taxes, auto registration fees, etc. increase, you are forced to live on less.

If you get your raise (and several of your co-workers also are given raises) the cost of doing business has gone up. The business will then pass the extra costs on to their customers - inflation.

Inflation can also be caused by scarcity. For e.g.if there are only a 10,000 houses and there are 1,00,000 people that want one, the price is going to go up. If the bird-flu disease causes farmers to cull a large portion of their flock and there is less chicken on the market, the price of chicken will go up.If interest rates go up, inflation can be the result. If it costs more to borrow money, the cost of doing business has gone up and so will product and service prices.

For the last 10 years inflation has been relatively high. Many people have taken on additional debt rather than curtail their spending. But people can only stand so much debt. Once you are maxed out on your ability to pay, you will either have to reduce your lifestyle, beg for a raise or find a higher paying job.

For the most part, regular, steady inflation has little effect on our day-to-day living. Most people get a pay raise every year or every other year that either keeps pace with inflation or helps them move a bit ahead. But when you are looking at the long run and making long term plans, inflation can have a big impact.

Most people look at their present living standards and estimate how much they will need to accumulate to survive. They don't even take a second look at inflation. India's inflation rate is currently above 10%. There are no Fixed Deposits which give such high returns. This means that for ever year that your money is in the bank you are actually losing money!! Don't believe me? Go to the Best Fixed Deposits page and have a look.

So inflation eats away your savings on a daily basis. What can you do to stop it? Truthfully nothing. It is out of your hands.

Author: David Berky

Sure you may have your home paid for, but your medical bills will go up as you get older and your insurance costs will increase. Also you may want to travel more. You will have more time for hobbies. How will you pay for them?

The best way to beat inflation when planning for the future is to include it in your calculations. Another quick way to account for the effect of inflation is to subtract the inflation rate from any rate of interest you will be receiving on an investment. So if you are going to assume a 10% inflation rate and the assumed rate of return is 11%, do the projection with only a 1% rate of return. This will give you a more accurate picture of the value (not the amount) of the investment at its maturity!!!.

Some investments such as real estate and precious metals (gold, silver, etc.) actually benefit from inflation. You have to truly "diversify" your portfolio into more types of assets,i.e. asset allocation.

Inflation does not have to be scary as long as you understand how it works and how it affects your future money values. Accounting for it in financial equations and projections can be done simply. But overlooking it or downplaying its effects can cause you to miss your financial goals by a wide margin.