Between the years 2014 to 2017, the interest rates have witnessed a significant decline owing to the inflation in the country. This, in turn, helped a large number of borrowers avail cheaper credit. On the other hand, the decrease in the interest rate impacted the investment returns negatively. Fixed deposits and small saving scheme such as PPF offered their lowest returns in several years due to the decline in the interest rates.

However, it has been observed that the interest rates are beginning to rise again. Consumers can make the most of the rising interest rates by taking some well-informed decisions. Let’s have a look at some of the ways through which consumers can benefit from rising interest rates.

Exit Long Term Debt Funds

• When the interest rates are rising, it is advisable to exit long-term debt mutual funds and invest in liquid funds or short-term funds.
• Liquid or short-term funds deliver moderate returns without the volatility of long-term funds.
• Since Long-term funds are most volatile during an interest rate rise, it is advisable to shift your securities to a shorter maturity period. By doing so, you can significantly reduce the risk of losing your money.

Refinance your Loans

• If you are paying a higher interest rate on your loan, you should consider refinancing it by opting for cheaper loans.
• As of now, loan interest rates have increased marginally. Therefore, make sure to refinance your loan before the interest rates rise further.
• Refinancing your loans can help you reduce the overall cost of borrowing in the long run.

Repay your Existing Loans at the earliest

• It is advisable to repay your existing loan as soon as possible. Since the interest rates are rising gradually, extending your loan tenure can increase the overall cost of borrowing.
• On the other hand, if you settle your loans at the earliest, you can save yourself from paying higher interest towards the loan repayment.

Reinvest in Fixed Deposits.

• If the interest rates peak significantly, you can opt to break your old FDs and reinvest in new ones. This can yield you profitable returns.
• However, it is not advisable to reinvest in new FDs if the interest rates rise marginally. This would not make a big difference to your returns.

Get Back To Small Savings

• Schemes such as the PPF, Sukanya Samriddhi, and NSC are great options for small savings.
• Moreover, under section 80(C) of the Income Tax Act, these schemes are exempt for taxes and hence you can generate returns in a tax-efficient manner.
• The falling interest rates had decreased the popularity of such governmental schemes. However, with rising interest rates, these options should be reconsidered.

Since the interest rate is such a fundamental aspect while availing a loan, you should always settle for a financial institution that offers loans at most competitive interest rates and also lean the loan approval process at first to avoid any delay.

You can also get an idea of the personal loan interest rate with the help of an online interest rate calculator. Lastly, do not forget to read the terms and conditions of your loan agreement carefully before signing it. This can help you avoid any inconvenience in the later stage.

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