A floating interest rate in an inflationary environment can be profitable or unprofitable for the depositor

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monira444
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Joined: Sat Dec 28, 2024 4:34 am

A floating interest rate in an inflationary environment can be profitable or unprofitable for the depositor

Post by monira444 »

It all depends on the factor to which it is tied.

Combined
Floating interest carries too much uncertainty, so it is almost never used in its pure form. More often, a minimum value is determined below which it cannot fall. For example, it can be tied to the CBRF KS, but not fall below 3% per annum.

Staircase
In this scheme, the interest rate depends not on external but on internal factors. For example, such a factor can be the term: in the first year the interest rate is low, in the second it increases, in the third it singapore mobile database reaches its peak, and in the fourth and fifth it gradually decreases. At the same time, high profitability is possible only if you invest for five years. For the bank, these restrictions serve as a guarantee that you will not terminate the agreement ahead of time - otherwise, all interest will be recalculated at the "on demand" interest rate (from 0.01% to 1.5%).

Growing
This scheme is used in a stable economy, when prices grow by no more than 6% per year. Credit institutions want clients to invest money for a long time. This allows them to implement long-term strategies and increase capital. But reliable long-term investors must be attracted by financial benefits, so the interest rate grows proportionally to the term and amount.

Descending
Interest rates tend to decrease in yield as the term and amount increase, in an inflationary environment. This may mean that you earn more in the first year than in subsequent years.

When prices are rising quickly, it is difficult to invest for a long time. This can be risky for the bank and for the depositor. The bank can pay the depositor excess profit if inflation slows down. The depositor, on the contrary, may not outpace the growth of prices if it accelerates. Therefore, it is worth reviewing the investment program every 6-12 months and looking for new investment instruments.
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