Interest

Interest

Interest is the monetary charge for using money and it is expressed in percentage and calculated yearly. Interest can be charged for borrowing and lending. Interest is the additional money that should be repaid in addition original money. Interest plays vital role in the market and is the main reason of over flow or under flow in the market. Whenever interest rate increases there will be overflow of money in the market and vice versa.
For example: Ms. Pranisha Gurung deposits Rs .5.00 Lac in Everest Bank Ltd and Ms. Gurung gets interest from Bank for depositing her money. In this example interest is income for Gurung and expenses for Bank.
Similarly, Ms. Khushi Chettri takes loan of Rs .25.00 Lac from Everest Bank Ltd and Ms. Chetrri pays interest to Bank for borrowing money. In this example interest is expenses for Chettri and income for Bank.
Normally higher interest rate on deposit depends upon bank’s base rate, its cost of fund and other expenses of bank. So bank with high base rate shall offer high interest rate on deposit and vice versa.
For example: Bank with base rate of 9.00% shall offer higher interest rate in saving or fixed than bank with base rate with 7.5%. Customer who wants to deposit money need to choose bank whose base rate is higher and customer who wants to borrow money (Loan) need to choose bank whose base rate is lower. We have also seen many times banks are offering higher interest rate in fixed deposit which means bank wants to hold deposit in order to maintain CD ratio of the bank.
Hence, we need to understand that higher interest rate in fixed deposit directly increases base rate of bank. Interest is one of the investment portfolio for the investors. Some investors invest their fund in share, debentures, fixed assets, forex, debentures, commodities etc. interest is one the secured investment for investors as other investment portfolios are highly volatile.
By: munankarmip
Copy right @munankarmip