Is Interest Paid By Banks In Saving Accounts & Fixed Deposits Riba Or Sood?
Thanks, Cost of living adjusment is not same as inflation, it is dependent on inflation though. 3.1% mentioned in your comment is not inflation.
Sohail Baita, It looks like you won’t answer my question directly/the way I presented it. I just don’t understand how APR may already factor in “inflation” when APR is less than the inflation for the same period? I know for fact many banks offer an APR that is several times less than the inflation rate. This is my final try to get a straight answer. I am giving up. May Allah (SWT) keep you and your family safe.
Salam @Fawwad sb – I wasn’t trying to dodge your question. There are multiple ways inflation can be estimated, CPI is definitely one way to do it. For a more accurate and comprehensive measure of inflation rates in the U.S., the PPI and the GDP deflator can be assessed in tandem with the most recently reported CPI measurements. When bank determines APR on your savings account, that APR factors in “inflation” based on the formula of Nominal interest I already provided above. a) Real-risk free rate of interest (i*) b) APR = Nominal interest rate = i* + Inflation Premium + Default Risk Premium + Liquidity premium + Maturity Risk Premium The risk-free rate represents the interest an investor would expect from an absolutely risk-free investment over a specified period of time. The real risk-free rate can be calculated by subtracting the current inflation rate from the yield of the Treasury bond matching your investment duration. If you believe “inflation” is not built into APR already, pls. go with what other CPI related computation makes sense to you. I am simply providing my input based on what I know and what makes sense to me in regards to TVM and APR. Thanks again and stay blessed.