Wednesday, May 10, 2006

Interest rate and spending

High interest rates is a signal for saving moneyHigh interest rates; what’s that means to you? Usually high interest rates means that government is trying to cut off people’s spending and reduce inflation. But, in the real world, is this really happening?

For example, New Zealand government is fighting on inflation and hence, increases the interest rates. But, from my observation, people still throw their money around without any worries of increase in price.

So, what should we do in this situation? Basically, start saving your money. As the interest rate is high, you can get higher return. Today, the highest interest rate for saving account in New Zealand is 7.40% which is reasonably high. Imagine if you save $10000 for one whole year. You will get $740 without having to do anything! Besides, you can prevent your money from leak out for unwanted things.

And by saving your money, you will help the country to reduce the inflation rate. This will bring the price down. And when the time comes, use some of your savings and bang on! Buy things that you always wanted at a lower price as the inflation rates has gone down. Moreover, when the inflation rate is under control, usually interest rate will also go down slightly. So, it is not so profitable to save so much money.

So, take your action now. If there is any sign of increase in interest rate, save your money as much as you can. Then, when the price starts to reduce, spend your money wisely. Don’t overspend as it will quickly bring the price up again.

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1 comment:

hourcheat said...

Noticed that NZ fixed deposit interest rate is very high now. Plan to park my money ther soon.