How to Safeguard Your Savings During Inflation?

The constant rise in prices has baffled us all. A sudden increase in commodity rates puts pressure on your already stretched finances. We have heard the incredulous prices be blamed on inflation, but what exactly is that? Inflation is the rate at which prices of goods increase, leading to a reduction in the customer’s purchasing power. This means that the number of things you can buy with a given amount of money decreases as prices hike constantly. This incessant increase in the prices of commodities may deplete your savings and leave you helpless.

Meet Simran. She, like us all, is troubled by the constantly rising prices of basic necessities due to inflation. While out shopping, she realised that right from books to food, everything was getting more and more expensive with each passing day. Simran thought about the expenses and realised her account might empty out if she does not start saving her money the smart way. She wants to multiply the extra amount lying in her account to gain some financial stability to get through these challenging times. So, on her colleague Raj’s advice, she decided to save through a fixed deposit.  

Initially, like you, she too was confused and asked why a fixed deposit? Let’s first understand how inflation affects repo rates and fixed deposits!

Fixed Deposits: The Right Saving Tool During Inflation

One of the most immediate measures taken by the central bank during inflation is increasing the repo rates. What is a repo rate? It is the rate of interest at which the Reserve Bank of India (RBI) lends money to banking institutions. A rise in these rates discourages banks from borrowing money from the central bank and helps regulate liquidity.  

A rise in repo rates leads to an increase in the interest rates of any debt like a mortgage, an auto loan, and so on. Hence, you will likely see that loan EMIs might rise with a rise in repo rates. Therefore, inflation has a direct effect on the changes in repo rates.  

Now you may ask how does this relate to fixed deposits?

If you are someone who likes to use traditional saving tools, inflation might prove beneficial to you against all its cons. A fixed deposit might be a great option to make the most of rate hikes during inflation. This is because fixed deposit rates also surge with an increase in repo rates. This means the returns on your deposits improve considerably.

Along with this, fixed deposits are a secure and stable form of saving tool with minimal risk factor. This implies that fixed deposits remain constant unlike the value of bonds, mutual funds, and other investments, which are affected by fluctuations in the economy. Once your money has been locked away for the predetermined period, the amount continues to grow at a fixed rate. It remains unaffected by the continuous changes in the global market and economy.  

Current Repo Rate and its Impact on Fixed Deposits:

On 7th December 2022, RBI announced the 5th repo rate increase for the year. As the repo rate increased by 0.35%, fixed deposit rates rose from 7.5% to 7.85%. This is a huge reversal compared to the lowest deposit rates noted 6 months ago and an opportunity to make the most of rising inflation. It is good news for you, if you decide to protect your savings through a fixed deposit like Simran.  

Raj explained this increase in rise of rates and its effect on fixed deposits to Simran. Following his advice, she put her money in a fixed deposit as soon as the repo rates hiked. After the repo rate increased, Simran added ₹1 Lakh for a period of 5 years to earn an estimated return of ₹47,506 on her deposit. She will now get around ₹2,511 more on her interest against the previous estimate earning of ₹44,995. Simran boarded the risk-free express of great returns and multiplied her savings with the right saving tool.

Amidst rising expenses, it is essential to keep multiplying your savings and to maintain a financial backup for emergencies. This may prove difficult as the value of assets like bonds and cash also decreases in the wake of inflation. Meanwhile your EMIs start getting more expensive with the hike in interest rates. But you can save via fixed deposit and use inflation in your favour.

Are you looking to compare rates and tenures to select the perfect fixed deposit plan for this inflation? Check out the Bajaj Markets website or app and book a fixed deposit from leading financial institutions like PNB Housing Finance, Bajaj Finance, and Mahindra Finance. Save now and cruise through the scary storm of inflation!