Bank interest appeared with the advent of banks. Although in ancient times there was a practice of lending something with the requirement to return a larger amount of product. I must say that the ancient philosophers of usury did not approve, because believed that money did not have its own value, because it was not at the time of the Creation of the world by the Most High. And that which has no intrinsic value can be transferred free of charge to another person without loss for the initial owner. The tradition of treating one of the most common banking operations in this way is preserved in Islamic culture. In its present form, bank interest began to exist from the 17th century, when trade among the middle class was actively developing.
Many economic processes depend on the value of this parameter. But keep in mind that bank interest is a broad concept. There are at least three of its varieties:
- interest rate on deposits and deposits, which the bank pays to the one who placed his money in a credit institution;
- interest on loans that must be paid by the one who borrowed from the bank;
- interest on interbank loans that banks pay each other when they place temporarily free cash.
It is believed that high bank interest has a negative effect, as it reduces business activity due to the cost of capital. For those who deposit money , this is probably good. But this increases interest rates on loans, reduces the number of individuals and organizations that would like to use a bank loan, which ultimately leads to lower rates on deposits.
When the bank interest rate decreases, all participants in economic processes can receive more inexpensive money that is invested in the creation of production capacities, stimulate trade processes, which leads to an increase in the number of jobs, large volumes of products, the collection of more taxes at the same rates and .d. Therefore, the state has long sought to regulate these processes by applying an impact on the
discount rate, tax legislation and the system of
insurance of population
deposits .
Bank interest on deposits is calculated on the basis of the terms of the agreement, which may include payment of interest at the end of the deposit term or interest payment, for example, quarterly before the end of the deposit. In another way, interest is calculated if, for example, they are accrued monthly and are not withdrawn. In the simplest case, to determine the income on the deposit, you need to multiply the deposit amount by (1 + interest rate \ 100 * the time the deposit was placed in days \ 365 days a year).
The interest that a client pays to a financial institution on a loan also depends on a number of reasons, including the method of returning the amount taken and interest. They can be returned together (interest and part of the loan are paid), by the annuity method (return in equal parts) and payment of the principal amount of the loan only at the time of repayment. What is interesting here is that with the same interest rate and different methods of calculation, the total amount paid to the bank may vary slightly.