The most common and easiest way of investment available to everyone today is a bank deposit. This type of investment can be classified as fairly reliable, but it should be borne in mind that, as a rule, the rates offered by banks rarely cover inflation losses. In other words, through the contribution, one can save one's money, but not increase it.
What are
Banking marketing services are sophisticated in coming up with different names for these deposits. Their spectrum is extremely wide. For example, in Sberbank, this, in addition to the classic three “Save”, “Replenish” and “Manage” - various “Leaders”, “Just seven”, “Anniversary” and many, many others. In other banks there are deposits “Profitable”, “Profitable”, “Maximum profit” and others. It must be remembered that all these names serve only one purpose - to maximize the attraction of customers with their money. Therefore, paying special attention to them is clearly not worth it. Let's try to figure out where it is better to place money and how to calculate interest on it using the formula for simple interest on the deposit.
What to look for
Of course, first of all, you should choose a bank. Cases of mass revocation of banking licenses have recently become so commonplace that special care is needed here. Therefore, the choice should fall on the backbone banks, or more simply - those financial institutions that are too large to "fall" without consequences for the whole country. Advertising increased, sometimes simply prohibitive percent should scare, and not attract potential customers. The lessons of MMM, "The Lord", "Gorny Altai" and others taught little to our citizens. The amount of the deposit to a certain size is insured by the state, but if you imagine what kind of circles of hell you need to go through to get your money that has disappeared in a bank that has gone bankrupt, you inevitably come to the conclusion that there is too much risk.
Key Features
Any contribution, or deposit, in a financial institution can be characterized by four main features:
- Interest rate.
- Interest payment method (at the end of the period or periodically).
- Terms for early withdrawal of all or part of the amount.
- The possibility of replenishment before the expiration of its validity.
Everything else is the so-called “pipes and whistles”, invented, like the names of the deposits themselves, to draw attention to the banking product. Nevertheless, it is also worth getting acquainted with these nuances in order to eliminate hidden costs. For example, additional deposit insurance, various commissions, withdrawal fees and other tricks. Recently, they are almost never used, but vigilance should not be lost. And in all cases it must be remembered that any bank, any financial institution will not work at a loss for the sake of the client. If, as a rule, no questions arise with the 3rd and 4th points, we consider the formula for calculating simple interest on a deposit.
Simple interest
As the name implies, the formula for calculating simple interest on a deposit is very simple. It looks like this:
P = (Contribution / 100) × Bet × G
Where:
- P - the amount of simple interest on a deposit for one year;
- deposit - the amount placed on the account;
- rate - interest rate in percent per annum;
- g - the period of placement of funds in years.
Here we are talking about the payment of interest at the end of the term. For a whole number of years, when = 1 or 2, and so on, - the amount of income according to the formula for calculating simple interest on a deposit is calculated elementarily.
If the term for placing the finances is several months or days, the following calculations must be added to the above formula:
- Calculate the value of P, that is, the theoretical amount of interest that will be accrued on the contribution for the year.
- Then the result should be divided by 12 (the number of months in a year) and multiplied by the number of months of the contribution. For example, 500,000 rubles is placed at 6.2% per annum for a period of 7 months. The calculations will look as follows:
500000/100 = 5000; 5000 × 6.2 = 31000 (this is the amount of interest for the full year).
And for 7 months it turns out: 31 000/12 × 7 = 18083.33
Thus, at the time the deposit term ends, the account will:
500000 + 18.083.33 = 518.083.33
If we are talking about days, then the annual amount of interest should not be divided by 12, but by 365 or 366 (the number of days in a particular year) and multiplied by the number of days during which the deposit will be in the financial institution.
For example, the amount already mentioned is not placed for 7 months, as in the previous example, but for 22 days. Then the value of annual interest, 31,000 is divided by 365 with the result of 84.93, which expresses the amount of interest for one day, and then multiplied by the number of days of the deposit: 84.93 × 22 = 1868.46
At the end of the deposit period, that is, after 22 days, the amount will be: 500,000 + 1868.45 = 501868.45.
Having dealt with a simple calculation, we can proceed to the formula for calculating simple and compound interest on the deposit.
Compound interest
Despite the name, there is nothing particularly complicated here, although the formulas for simple and compound interest on the deposit differ. In the second case, it looks somewhat intimidating:
P = Deposit × (Bet / 100 / N) ^ N
Where N is the number of interest calculation periods.
If you try to explain more simply, such a calculation differs from the formula for simple interest on the contribution by the number of charges. If in a simple deposit interest is charged once, at the end of the term, then in a complex deposit they can be calculated once a month, once a quarter, once every six months, and all this is within the term. Moreover, if the accrued interest is added to the main amount on the account, then it will be the so-called contribution with capitalization, and if they are transferred to the other account, for example, to the card, at the request of the owner, then this will be the usual allocation of funds to which the formula can be applied simple interest on the deposit, but not counting them for the entire period of the deposit, but only for the accrual period.
Capitalization contribution
Today, this is perhaps the most common type of contribution. Its essence is that at the end of each accrual period, and this, as a rule, is one month, interest for the same month is accrued on the principal amount and summed with it. Next month, the calculation of new interest is no longer from the initial deposit amount, but from the increased interest amount for the previous month. In other words, here the formula for simple interest on the deposit is applied every month, but each time it is calculated from the principal amount increased by the interest for the previous month. Let's take a well-known example with the same parameters, but now we will consider the allocation of funds with a monthly capitalization and will be calculated using the formula for simple interest on a deposit, but monthly:
The amount of interest for the first month. 500000/100 × 6.2 / 12 = 2583.33. This amount of interest is added to the main deposit: 500000 + 2583.33 = 502583.33
Interest for the second month is calculated from the increased principal amount 502 583.33 / 100 × 6.2 / 12 = 2596.69. And again, this amount is added to the main contribution: 502583.33 + 2596.69 = 505180.02.
Etc.
In principle, the above formula for simple interest on a deposit with capitalization can be applied immediately, without the use of exponentiation. The result will be the same, just calculations may take longer.
What is the difference
Let us compare the results of calculations using the formula for simple interest on a deposit and the formula for compound interest on a deposit with monthly capitalization from the above example for a period of one year.
Simple interest: 500000/100 * 6.2 = 31000; 500000 + 31000 = 531000. Compound interest with monthly accrual, that is, there are 12 accrual periods:
6.2 / 100/12 = 0.0051666 + 1 = 1.0051666 (raised to the 12th degree) = 1.06333
1.06333 × 500.000 = 531665.
For one year the difference turned out to be 665 rubles.
Compound Magic
In the previous example, the difference between the percentages in the calculation according to the simple and compound interest formulas does not make a big impression. However, over long periods of time, it is more than just impressive. There are many stories, beginning with biblical ones, about how small amounts of deposits placed at a complex percentage over a long horizon could turn into. A small contribution in a couple of hundred years, thanks to this magic, turns into billions.