Why a common man deposits his
extra earnings in the National savings Center? The answer is of quiet ease but
the technical drawback of it is quite complex and a common man is not able to
understand it. We deposit money in banks to cover our short term or long term
cash needs. The question is, we are not able to achieve that objective of cash
needs to live smooth life.
How Interest is calculated?
A common way of interest calculation is to consider the following heads before
placing an interest rate.
1. To cover the existing inflation rate
2. Addition to your money value
3. To take extra money to cover the risk of default
4. Defer today consumption for tomorrow consumptions
The above categories are so simple that a lay man can understand why he is
needed to charge interest.
Now, the originality of the topic is started. In simple formula interest that
you take from the borrower is;
Interest= inflation rate+ default risk+ defer of consumption+ some real return
Pakistani Depositor
National Savings center paid 8.75% (https://www.savings.gov.pk/sa_profit_rates.asp)
per annum on saving Account to their depositors in the year of 2010 while in the
year of 2010 inflation rate (CPI) was 16.17% (https://en.wikipedia.org/wiki/Economy_of_Pakistan).
Here see the difference that return of 8.75% was not able to cover one interest
determinant of inflation that was 16.17%.
8.75%= 16.17%+Default Risk (---) +Defer of consumption (----) + some real return
(----)
So, in real or even in nominal terms, there is no benefit of keeping your money
in NSC or in commercial banks. I believe that is why interest is forbidden in
Islam.
They best way to add your wealth is to invest in trade. You can invest in
property, gold, foreign currency, or in some other appropriate investment. Do
not exploit yourself from these giants. They are earning huge out of your money
while you are not even able to cover the rising price hike.