In today's world, people are increasingly in contact with financial institutions such as banks. Sometimes this applies to consumer loans or utility bills, but more often it is a desire to open a deposit in your own name. Today, a bank deposit is one of the most popular ways of saving and guaranteed stable increase in funds among individuals. After all, you can’t hide that all of us are driven by the power of love for money and to increase their quantity in our wallet. This is the main reason why the country's population loves deposit products.
Faced, for the first time with a “long” list of bank deposits, you can get a little confused and confused about what really is best. But over time, you begin to understand the meaning of the beautiful phrase “interest capitalization”, and that this is the best option in order to get the greatest amount of money. Let's take a closer look at this concept.
Interest capitalization is the accrual of interest to the deposit amount with a certain periodicity specified in the contract, as a result of which the deposit amount by the end of the term significantly “grows”. Simply put, this is the calculation of interest on interest, which in the financial sector is called "compound interest."
At first glance, it seems that a contribution with capitalization of interest brings more income. In fact, such a conclusion is ephemeral, because the rule only works in the case of equal annual interest rates. Naturally, the monthly capitalization of interest allows you to get higher income compared to other types of deposits with the same interest rates, only without capitalization, and to accumulate money by accruing accrued interest. And this is very good for the consumer, and therefore like it.
Today, all banks offer capital deposits without exception, because this option is the most popular among individuals. According to statistics, seven out of ten deposit products are with capitalization, their only difference is the frequency of accrual. Monthly capitalization of interest, as well as quarterly, is more popular. The capitalization of the enterprise interests no less than people. Indeed, if there is free money in circulation, why not invest it in a bank and subsequently receive a certain amount of money, which is useful in the "farm".
Initially, all the advantages of such deposit products seem obvious, especially the rate of return with the same investment amount and rate. However, do not forget that advantages, as well as disadvantages, are determined in comparison with analogues. Very often, a deposit with capitalization has an interest rate lower, which in some cases puts it on an equal footing with a different form of investment. That is, in both cases, you can choose interest rates so that the "efficiency" of the deposit with and without capitalization will be the same.
Interest capitalization will give the client the maximum income if you choose between deposits with the same rate. Only in this case will it bring unambiguous profit on average by 0.5-0.8% per year. That is, long-term deposits increase the advantage of compound interest.
The choice of deposit product should be approached wisely, especially if the amount of cash is decent. After all, it’s one thing to get interest for less than $ 10, and quite another if it’s for $ 1000. This is a tangible difference and you don’t want to lose it. So remember, some basic simple rules that should be followed when choosing a type of deposit.
Interest capitalization will work one hundred percent if the rate matches other products without compound interest. So, when studying products, pay attention to both the absolute value of interest and capitalization. Well, do not forget about the term of the deposit and the frequency of interest calculation, because the final income depends on these factors no less than the rate.
And one more, the main disadvantage of a deposit with a compound interest is the lack of the possibility of early termination. That is, if they want to return their funds ahead of time, all interest will be recalculated at the “demand” deposit rate. And this is essentially a penny!
Turning to the bank for the first time in order to determine the optimal deposit, you can ask employees to calculate the profitability of the most popular deposit options. In general, in this choice you need to be guided by your own goals, that is, if there is a goal of accumulating money - interest capitalization suits you perfectly!