Benefit from Falling Interest Rates

24 August 2011 - Which Way to Pay

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Benefit from Falling Interest Rates

Over the last 15months, rising interest rates have dominated financial markets. The Reserve Bank of India (RBI), in its policy review meeting on July 26, raised the key policy rates (repo and reverse repo rates) by 50 basis points each with immediate effect in an attempt to tame inflation. If rates drop, you can benefit and here’s how:

Why could interest rates drop?

Downgrades of country ratings or a sovereign default, it will lead to risk aversion in the global markets. This will adversely impact business and consumer confidence worldwide resulting in decreased investments and capital expenditure as well as massive cuts in consumer spending. This will bring down the demand for money and, ultimately, the rate of interest.

How can you benefit from falling interest rates?

  • Pay off any debt you can that is not your mortgage
  • Overpay your mortgage
  • Start a regular savings account
  • Drip feed it into investments
  • Take out payment protection insurance
  • Save for your children's future
  • Save into a pension
  • Prepay your children's school fees

Ultimately, falling interest rates are aimed to increase consumer spending to stimulate a weakened economy.



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