Keeping money in the bank, preferably at least two reasons: security and an increase in the starting amount on account of interest. The ability to calculate the interest on the deposit will help to assess the benefit of the banking offer and predict potential income.
CBR puts forward a number of commitments to the leading activities in the credit organizations, one of which – the daily calculation of interest on deposits. and so it is in the intro programs, but in fact, the interest is paid to depositors under the terms of the specific contract.
Banking systems two methods are used for calculating percent: simple and complex. Last also called contribution with capitalization. In the first case, there is a transfer of all accrued interest on a separate account of the client within the specified contract period (monthly, quarterly, every six months, a year, or upon completion of the deposit placement). The second method of calculating interest is their accession to the body of the deposit, capitalization, according to the dates indicated in the contract. As practice shows, usually once a month or a quarter. When identical interest rate, the amount of the contribution and the contract period the total yield will be higher for deposits with capitalization.
Methods of Calculating Simple Interest On the Deposit
The calculations are based on the use of the indicator, which shows the dynamics of the interest charge within the specified period. Self-expression of the deposit referred to as the interest rate. The mathematical meaning of the term indicates the amount of money paid by the debtor for the possession of 100 units of credit per unit of time. In practice, the operation takes place in a separate certain moment.
Contractual obligation to transfer the funds and their shape can be different and are divided into several types. calculating different options for both simple and complex, fixed and variable, floating and fixed interest rates.
The need to use a simple circuit is in demand for short-term deposit programs. The banking language is meant a period of one year. The meaning of the operation is reduced to the calculation of interest for the same starting amount for the whole period of the loan. The calculation is performed by one of three methods.
German Technique
It implies the presence of 360 days in a year and 30 days for the calculation of the monthly period and the number 31 will never involve any operations, and 28 or 29 February accrual takes place once in three or two days, respectively. It is used for intermediate calculations in commercial organizations in Sweden, Germany, Denmark if there is no need for great precision.
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French Technique
Sets only the number of days in a year is 360, but the loan period is calculated in calendar days. Such a procedure for calculating simple interest is used for international loan transactions, as well as for bank calculations within countries – Spain, Belgium, Switzerland, and France.
English (British) Technique
It takes into account the availability of extra days in a leap year. For computing, the year contains 365 or 366 days, respectively, and the term of the loan is calculated strictly on the number of calendar days. This system is mainly used in the US and the UK. According to the instructions of the Central Bank, it is this method for fixed interest charge in Russia.
The formula for the calculation of the three methods used overall. The difference calculation is formed by the values of turning the respective days of the year and month.
Example: The Bank offers to place the contribution in the amount of one million dollars for six months at 15% per annum. Required to calculate the amount of expected interest when the contract is entered into from 1 January to 30 June.
The second option is relevant for the calculation of the leap year.
Briefly About Compound Interest
When making a deposit for a period of over one year, a system of settlement of complex interest rate. In this case, it takes into account the change in the original amount by adding to it the previously accrued interest. Consequently, the payout given billing period is calculated based on various input data.
Contractual terms can install two versions of Interest. Depending on whether the rate is charged at the beginning or end of the billing period, the operation will be called accrued interest. The second type is more common in the deposit, and credit offers.
To calculate the amount of payment for complex interest rate used different formulas depending on the input data. The determining factor for it may be whole or fractional timing periods, accounting or ignoring inflation rate.
All the techniques discussed above for calculating interest on deposit apply to loan contracts between natural and legal persons.