“According to Divakar Vijayasarathy, Founder and Managing Partner, DVS Advisors, the interest is the compensation for parting with money which makes sense only if it is higher than the depreciation in the value of money owing to inflation. For example, if the inflation is at 3 per cent and the interest rate is 5 per cent, the depositor earns an effective yield of 2 per cent. In a situation where the inflation rises without a corresponding increase in interest rate, the depositor’s effective yield will shrink.”
