Is Interest Paid By Banks In Saving Accounts & Fixed Deposits Riba Or Sood?
Thank you for pointing out the difference. However, I was not talking about Cost of Living. I was talking about Cost of Living ADJUSTMENT (COLA) which is based on Consumer Price Index (CPI). Let me ask the question in a different way : If the interest earned in saving account is less than CPI or COLA, would it still be considered RIBA? And, I know for fact, many banks pay interest much less than CPI or COLA. I would appreciate your response.
@Fawwad TVM is computed based on r% (discount rate). This is generally Nominal interest rate (again to keep it simple – we can call it APR). APR or the discount point used in the computation of TVM is what I referred to as Bank rate (r%) in my previous comment (to keep it simple, so most people here understand the concept). a) Real-risk free rate of interest (i*) Nominal interest rate = i* + Inflation Premium + Default Risk Premium + Liquidity premium + Maturity Risk Premium This nominal interest rate can also be referred to as the annual percentage rate (APR). Bottomline (if I may): If your financial instrument’s yield is greater than the TVM computed on the discount point, that interest is not allowed. I hope you see the rational of this! Thank you. For your second point on how to start a new discussion, see my next comment.
So, if the APR of a saving account is less than the CPI then the interest earned in the saving account is not RIBA. Correct?
Dear Sohail Sahib, I do not have the capacity to understand all these technical terms. That is why, I requested to keep them out. Would you kindly answer the question the way I presented it. Again, JUST ASSUME, it is a true scenario. Thank you.