Interest rates in India have softened in the last few months. The Reserve Bank of India is set to meet on December 2, to decide on the possibility of a repo rate cut, which automatically translates into interest rate cuts in the economy.
For a Depositor
If you are a depositor and invested in the last 2-3 months, you would have certainly lost on interest rates, as compared to about 9 months to a year back. The best thing for individuals to do is to invest in fixed deposits over a longer tenure. Say you are planning to invest in a bank fixed deposit that offers 9 per cent interest per annum on 1 and 3 year deposits. We would recommend that you lock money for three years since interest rates are likely to fall. Now, in the next few years if interest rates fall sharply you could not be bothered since you have already locked money at 9 per cent per annum.
If you are looking to take a personal loan, auto loan or gold loan and can postpone your decision, we suggest you do that. Individuals would probably get a loan at a much lower interest rate six months down the line, then what is prevailing currently. So, if you can wait for sometime most certainly do that.
Realign Costly Loans
If you have taken loans at a very high interest rate, you might want to pay them back and need be take loans at a cheaper interest rate. This could help in saving on interest costs especially if the loan amount is rather high.
Interest rate fall unlikely on Credit Cards
If you are carrying credit card amounts outstanding, it's best to pay them back. The one reason is that interest rates on the outstanding on a credit card seldom fall. So, though interest rates on loans and fixed deposits may fall, they do not fall in the case of credit cards.
It's therefore better, if you try and pay off these loans.