Interest Rates-III

Let me continue the debate on the floating rate interest rates. If the rate of interest on my borrowing done years ago increases then by same logic the rate of interest on the Fixed Deposit that I have with the bank should also increase. Right ? Wrong. Not only the rate of interest on my fixed deposit remains the same as it was at the time of opening of the Fixed Deposit, if I close the FD before its maturity date I have to pay a penalty to the bank for closing my FD ahead of time.

If I want to swap this low rate FD with a high rate FD with the same bank I still have to pay a penalty to the bank. So while bank has the right to increase the rate of interest on my loans, if I try to do the same I am asked to pay a penalty or I am forced to keep the same low rate of interest. I guess the increase in the interest rate scenario banks are the ones who keep on making money either way.
Considering this that the bank is going to win in either case and I have no means to beat  the bank I decided to join my bank. It was fairly easy to join my bank and become a banker myself, I bought shares in my bank listed on the Bombay Stock Exchange. Hopefully some of the interest the bank is charging me will come back to me in form of dividend and capital gains.
Like they say if you can't beat them join them.

Thanks for reading.

Other articles in this series:
http://moneyandus.blogspot.com/2011/05/interest-rates-ii.html

http://moneyandus.blogspot.com/2011/05/interest-rate.html

Now that we have worked on how to stream line the bills let us look at impact of non payment of some of the bills.

Bills can be divided mainly in 2 categories:

Loan Payments

Non Loan Payments

1. Loan Payments: CC, Car, Home loan, personal loan etc.
2. Non Loan Payments: Rent, insurance, utility bills etc.

Your first priority should always be paying the loans as non payment of loans can lead to serious implications. Now a days all lenders report about your payment habits to CIBIL which keeps a track of your payment habits. You can read more about the same here.

Some of the loans are very costly e.g. credit cards and personal loans. But still if you are tight on money and are going through a bad phase like job loss or some other financial problem and you have to take a call between say a credit card payment or a home loan payment you can look at it 2 ways:

1.Interest rate: Here Credit cards will win hands down as they charge almost 4 times per annum compared to a home loan. So if your aim is to save on interest payments then make the payment for your credit card first.

2. Security: You can also look at the loan whether it is secured loan or not, e.g your home loan and car loan would be secure loans and the lender is within his right to take possession of your house or car if you default on the same.

So if your aim is to save interest then this will be your priority to pay:

1. CC
2. Car
3. Home Loan
4. PL
5. Others

But if you want to save your house this will be your priority:

1. HL
2. CC
3. Car loan
4. Personal loan

I keep cc loans above car loans is because if you can not afford to pay your credit cards you better sell your car and start taking auto/local transport. As this way you will get some cash and will be able to pay the costly credit card loans.

Personal loans are not secured and the lender can not take any of your possessions due to your default on your loan. (This does not mean they will not try to threaten you with goons etc.)

But we should not forget that each one of ours situation and priorities will be different and we may choose to pay different bills first in times of hardships. The above points mentioned by me are only indicative and should be thoroughly researched and debated considering your own personal situation before taking any step during time of hardships.

Please remember the prioritization of bill payments is only in times of hardships like job loss or medical emergency when a lot of money needs to be diverted towards hospitalization ( assuming one is uninsured or underinsured for health).

In all other times when you have adequate money you should not forget to pay your bills and keep a hawks eye on them for their due date and always make the payment on time.

Thanks for reading. Do leave a comment.