POSTED BY April 11, 2012 2:19 am COMMENTS (9)

ONHi,

Few days back I came across one advertisement from SBI Bank in local marathi newspaper called “sakal”. They have FD schemes going on for NRE and there are interest rates for different time slabs. For 8 to 10 year FD, In one column the interest rate is shown as 9.25% and there is another column next to it where it is shown as “14.95%” at the end of the slab.

Those who can read marathi can check here

http://72.78.249.107/Sakal/29Mar2012/Enlarge/PuneCity/index.htm ( at the bottom right corner)

Also, NRE account does not have any tax liability in india.

My question is that 14.95% interest rate is possible and true OR this is some kind of mathematical trap

please guide

Dear Ain vest, please try to understand That yield thing is simple interest formula & it’s the compounding rate which is 9.25% in actual that should matter to you. Please do not get fooled by such yield rates.

Thanks

Ashal

Dear Ashal,

Thanks for your response.

So in short my money is still growing at the rate of 9.25% CAGR and NOT 14.95%.

please confirm.

thanks

True 9.25% is the true CAGR but remember this is tax free!

Dear ainvest, yes the CAGR is 9.25% only.

Thanks

Ashal

Completely agree with @Justgrow.

It is a different way of presenting the return. Your CAGR is still 9.25%

This is quarterly compounding. In Excel put [=FV(9.25%/4,40,0,-100000,1)] = 249,544.42

Interest = 149544 ==> Simple Annual yield = 149,544/100,000 = 14.95%

please correct to @9.25% instead of @0.25%.

it must be yield for 10 yrs fd at @0.25%. -i.e your money would be 2.495 times after 10 yrs. yielding 149.5% for 10 yrs and yrly average yield would be 14.95%.

This might not be correct, Please find latest interest rate of SBI for NRE accout @https://www.sbi.co.in/user.htm?action=viewsection&lang=0&id=0,16,387,392