Calculation of the effective interest rate. Effective interest rate on deposit

Today, a deposit can be considered as a type of income, both for the depositor and for the chosen bank. Mutually beneficial relationships occur on the basis of interest growth on cash investments. This article is devoted to the concept of effective interest rate and its calculation when choosing a financial deposit.

The concept of effective interest rate on a deposit

The effective deposit rate (ED) shows the depositor how successfully the money invested in the selected bank in the deposit account works. It is measured as a percentage. With its help, the capitalization of interest on the deposit is taken into account. Having calculated the ES, it is possible to compare programs offered by banks on different conditions.

Types of interest rates on deposits

Interest calculated monthly;
Interest accrued during the expiration period of the deposit;
Advance payment – interest is calculated at the beginning of the concluded contract;
Capitalization - interest accrued on the deposit is not paid to the owner at his request, but is added to the total amount of money invested and continues to work. For a bank, this procedure is somewhat costly, and the bank usually reduces the interest rate with this type of deposit.

Calculation of the effective deposit rate

As a rule, the nominal interest rate on a deposit (NA) always differs from the effective one by about 0.5%. Here are the effective rate calculations using an example.

Example.

Ivanov A.A., decided to invest money in a bank account and make a deposit for a period of 12 months. His investment is equal to 100 thousand rubles. At the same time, the tax liability on the deposit is 10%. After a year, the investor’s net income will be 110 thousand rubles:

+ ((:) *) = 110 thousand rubles

Petrov I.O. I also decided to invest financial resources of a similar size for the same period. But the interest on his deposit will be capitalized. The value of the rate in the average equivalent, taking into account the monthly breakdown, is 0.83%. As a result, it turns out that for the first month, the man received a reward in the amount of 830 rubles. Now interest will begin to accrue on the figure of 100,830 rubles.

The total income is 10,428 rubles. Consequently, the investor from the second example will receive 428 rubles more.

(10 428:) * = 10,43%.

Here you can see its difference from the nominal rate (10%).

Interest rates in banks on deposits. Review

In 2014, the average effective deposit rate is 9% per annum. Here are some programs that banks in the Russian Federation currently provide with interest capitalization.

Banking structures today provide deposit rates for pensioners at a fairly high level. But very often it is difficult for elderly people to decide on the choice of bank, and even more so to calculate the most profitable investment.

The table shows several banks that willingly offer their services to pensioners.

Sberbank has several programs for older clients. During the period of its operation, this bank received trust from pensioners. Below is an example of calculating profitability under the Sberbank program.

“Save” deposit: the amount of this deposit is from 1 thousand rubles, the term is 1 month, the interest rate is from 5 - 7%, the deposit with monthly capitalization. You cannot top up or withdraw money.
“Replenish” deposit: deposit amount - from 1 thousand rubles, period - 3 months, interest rate from 5.30 - 6.60%. Replenishment is possible.

Example

An elderly pensioner has average income. He owns a sum of money in the amount of 100 thousand rubles and wants to replenish his contribution in the form of deductions from his pension. The period for placing funds is 12 months.

If a pensioner invests 100 thousand rubles for a period of one year in the “Save” deposit, then his profit will be 6,168 rubles. Here the NS is equal to 6%, and the real one is 6.08%.

Next, click on the “Replenish” deposit. Every month the pensioner is going to replenish his contribution in the amount of 1 thousand rubles. In a year he will receive 6,226 rubles. And if the senior citizen did not replenish his deposit, his income would be equal to 5,904 rubles. Tax on deposit - 5.75%, effective rate - 5.82%.

Consequently, it is much more profitable for a pensioner who has invested 100 thousand rubles to place his funds under the “Replenish” deposit program. After all, if he wants to increase his personal income, then it is always available here. And if you select the “Save” deposit, you will not have the opportunity to replenish your deposit.

Are you interested in the question of how you can calculate the effective interest rate on a bank deposit? In our article today we will tell you about the methods of calculation, and also tell you what the benefits of such an offer are.

So, novice investors who are planning to invest their savings in a bank deposit account face many difficulties.

First you need to decide on a banking company, and there are many nuances here: reliability rating, work experience, size of the structure and development of branches, proposed profitability, etc. An important factor will be the question of whether the bank is a member of the deposit insurance system together with the DIA, we talk about this.
After a company has been selected to open a savings account, it is time to select the right program that will be beneficial for the client in terms of its terms.

Here you need to pay attention to the following nuances:

What are the minimum contributions accepted;
What is the proposed investment period;
What interest rate will apply;
How often interest will be calculated and when it will be paid;
What additional features are offered, for example, is there a function for replenishing an account or partially withdrawing funds from it without loss of income?

And it is at the stage of selecting a program that you may come across such concepts as “nominal rate” and “effective rate”. How are they different and how to calculate them? We'll talk about this further.

Nominal interest– this is the income that the bank offers you. It is this percentage that will be indicated in your contract, and it is based on it that a preliminary calculation of the profit that you can invest under initially known conditions will be made.

For example: you invest 100,000 rubles for 1 year at 8% per annum, while your interest accrues monthly. Your income is calculated like this:

Thus, your income will be 7990.84 rubles for 1 year.

Effective rate– this is the profitability that is applied to deposits where capitalization (compound interest) is used as the method of calculating interest. During capitalization, the entire term of the deposit is divided into several periods, and the previously accrued interest is added to the original deposit amount. Thus, with each period, your income will increase, because... the amount on which the bet is calculated increases.

Let's consider a similar example, when you invest the same 100 thousand for 12 months at 8%, but not with payments, but with monthly capitalization. In this case, the calculation will be carried out using the following formula:

For our example, the income will already be 8290.07 rubles

We calculated the income that will be obtained from interest with capitalization. The effective rate itself is calculated very simply: the income received is divided by the amount initially invested by the client and multiplied by 100. i.e. 8290.07/100000*100% = 8.29%.

As you can see, the effective rate will always be higher than the nominal rate, because it takes into account the possibility of obtaining maximum income when choosing capitalization. The calculation can be done as follows:

Independently using the formulas presented in our article;
Using an online calculator on the official website of the bank of your choice or using this link;
Or simply contact a consultant at the bank branch where you want to invest your savings.

As you can see, there is nothing difficult in calculating the effective interest rate on deposits; the main thing is to choose the method that suits you.

Today, more and more of our compatriots are using bank deposits. This is not surprising, since by investing a certain amount it is quite possible to increase it after a certain time interval, although not very much, but noticeably.

The actual idea of income from a deposit is not always the same as described in the booklets. For example, it offers deposits at 7% per annum in rubles. This figure is nowhere near the profit percentage you would expect. Therefore, in order to understand the real picture, let’s do some calculations. An important fact is (change in percentage and/or deposit amount). Depending on this, there are two formulas for calculating profit: the simple interest formula and the formula. Simple interest is used when the deposit amount and interest rate are stable.

For example: you opened a deposit at 8% per annum for a year, the deposit volume is 200 thousand rubles.

Let's substitute the data into the rate formula: Real income = (Deposit amount * rate % * (days for which interest is calculated, often half the term / days per year)) /100

Let's do the calculation: (200,000*8*(184/365))/100=8066 rubles (the actual amount we will receive in six months). In total, the investor will receive: 216,132 rubles.

If we are talking about a deposit with monthly recalculation of interest (capitalization), then the following formula should be used: Real income = (Deposit amount * rate % * (days for which capitalization occurs / days of the year)) /100.

For our example, let’s calculate the addition of the amount after a month:

(200.000*8*(30/365))/100=1315 rubles. To calculate income for the second month, add 1315 rubles to the initial deposit, etc.:

Income for the 2nd month: (201.315*8*(30/365))/100=1324 rubles;

Income for the 3rd month: 1332 rubles;

Income for the 4th month: 1341 rubles;

Income for the 5th month: 1350 rubles;

Income for the 6th month: 1359 rubles;

Income for the 7th month: 1368 rubles;

Income for the 8th month: 1377 rubles;

Income for the 9th month: 1386 rubles;

Income for the 10th month: 1395 rubles;

Income for the 11th month: 1404 rubles;

Income for the 12th month: 1413 rubles.

Total income from the deposit: 16,364 rubles.

In total, the investor receives: 216.364 rubles (232 rubles more than in the case of simple interest).

Effective interest rate on a deposit - shows the investor’s real income from the deposit or the effectiveness of the growth of money in the investor’s account. Essentially, it is the value of your money to you. The effective rate on a deposit can be considered as the bank's profitability on its issued loans. In simple terms, the effective rate is the result of the return on a deposit with interest capitalization and a certain bank rate. Often, the calculation of the effective rate is carried out to compare two deposits with different deposit terms.

Formula

To calculate the effective deposit rate, use the formula:

(Total amount (received from investment with capitalization) / initial investment amount) *100-100.

Let's calculate: (216.364/200.000) *100-100=8.18% (percentage of income from a deposit with capitalization and bank interest of 8%).

The effective deposit rate is a characteristic of deposits with an interest capitalization system. It differs from the nominal rate specified in the contract.

A typical deposit looks like this. The depositor brings money to the bank as a deposit. An interest rate is assigned to the deposit. This rate is called the nominal rate. Interest on the deposit is accrued and paid only at the end of the term of the deposit.

A deposit with interest capitalization has a different scheme for calculating interest. Interest on the deposit is calculated monthly. And they also issue it monthly. But the bank does not hand over the money to the depositor. And it counts them towards the principal amount of the deposit. And next month interest is accrued on this new (increased) amount. Interest accrual procedure - accrual of interest to the deposit amount will be cyclically repeated monthly until the deposit expires.

Obviously, if the amount of the deposit increases every month, then the monthly interest calculation will also increase. It is also obvious that the final income from a deposit with interest capitalization will be higher than from a simple deposit with the same nominal rate and the same validity period.

It's time to illustrate what has been said with an example.

A certain citizen deposited one hundred thousand rubles in the bank for a year at a nominal rate of 12 percent per annum. in a year he will make a profit (100,000 / 100) * 12 = 12,000 rubles.

Another citizen I also deposited one hundred thousand rubles in the bank for a year at 12%, but on a deposit with interest capitalization.

The calculation of this citizen’s income looks different. 12% per annum, which is roughly 1% per month

income for the 1st month 10000*0.01=1000

income for the 2nd month (100000+1000)*0.01=1010

income for the 3rd month (101000+1010)*0.01=1020.1

income for the 4th month (102010+1020.1)*0.01=1030.301

income for the 5th month (103030.3+1030.301) *0.01=1040.61

income for the 6th month (104060+1040.61)*0.01=1051.01

income for the 7th month(105100.61+1051.01)*0.01=1061.51

income for the 8th month (106151.62+1061.51)*0.01=1072.13

income for the 9th month (107231.13+1072.13)*0.01=1083.03

income for the 10th month (108303.26+1083.03)*0.01=1093.86

income for the 11th month (109369.29+1093.86)*0.01=1104.63

income for the 12th month (110463.15+1104.63)*0.01=1115.68

The total income was 12,682.86 rubles.

Those. the second depositor will receive 682 rubles more upon expiration of the deposit period.

Now let’s recalculate what percentage the amount is 12682.86 of the original one hundred thousand

(12682.86/100000)*100=12.68286% is the final return on a deposit with capitalization with a nominal rate of 12% per annum. This final return is called the effective return on a deposit with capitalization.

Sometimes (rarely) banks indicate the effective yield in the contract. But by law they are required to indicate the nominal rate. Therefore, the investor is forced to either calculate the effective rate himself or trust the bankers in the hope that they will pay honestly. As a rule, capitalization increases the profitability of the deposit by 0.5-1.5 percent per annum. If the nominal yield is in the range of 8-15%, then the effective rate will approximately be half a percent higher. If the nominal rate is 15% or higher, then capitalization adds one percent to the yield. Thirty percent per annum and above - capitalization gives plus one and a half percent. These are all rough estimates. It must be said that it is no longer possible to find a yield higher than 15% on the Russian deposit market. Inflation is falling, and rates are falling.

Effective interest rate on a deposit - what is it?? Let's try to figure it out. This rate applies only to long-term deposits. And the longer the term, the higher the interest rate the bank can offer.

The rate will be higher both in the absence of replenishment and partial withdrawal of money. In this case, interest can be withdrawn.

Deposits are different. And you need to carefully read all the conditions. In one case, if you want to close the deposit ahead of schedule, but there is no partial withdrawal on it, then all the interest may be lost. Those. there will be a minimum bid. In another case, in case of early closure with the possibility of withdrawing money, the rate will not change.

Effective interest rate on a deposit - what is it?

This concept refers to those deposits that have capitalization. Those. when interest is added to the deposit. And on this interest you can accrue interest. This type of calculation is called complex. Exactly compound bet is effective.

Interest can be credited to the deposit account either every month or every quarter. It all depends on the terms of the contract.

A simple rate is when interest is not added to the deposit. It is clear that compound interest will be more effective and bring more profit than simple interest. Let's look at this with an example.

1. Complex (effective) rate – calculation of income at a complex rate.

The amount is 200 thousand rubles. The contribution percentage is 7.76%. Duration – 1 year. With capitalization.

The income will be 13,182.19 rubles.

2. Simple bet.

The amount is 200 thousand rubles. The contribution percentage is 7.76%. Duration – 1 year. Without capitalization.

Income will be 12,800 rubles.

Now we know that the highest return will come from a deposit with interest capitalization.

Often, borrowers are faced with the fact that their debt repayment costs significantly exceed the actual amounts indicated by a smiling loan officer and inviting inscriptions on advertising banners. To understand your real loan repayment costs, you first need to calculate the effective interest rate. We will tell you what it is and how to calculate it in this article.

The effective interest rate is...

Effective rate of interest has many definitions, but they all reveal the same essence from different sides. This:

Loan rate, which includes all costs of servicing the loan, insurance programs, commissions, etc.
The annual compound interest rate, which is the value of assessing the profitability of a certain financial transaction.
The real cost of the loan, which contains all the borrower's costs during the repayment of the debt.
The actual cost of a loan that is greater than the nominal rate.

To better understand the essence of the effective rate, later we will draw a small parallel with the announced nominal rate.

What does EPS include for cards?

We warn you that the highest effective interest rate awaits you when you sign up for such a popular credit card today. The EPS will contain:

Payment (commission) for the release of “plastic”.
Card servicing fee.
Fee for maintaining a current account.
Commission for transactions using the card.
If appropriate, a currency conversion fee.
In case of violation of the terms of the loan agreement - a fine for exceeding the limit or late payment.
And, in fact, repayment of the debt amount and payment of interest on it at a nominal rate.

From this we can draw the following conclusion: do not settle on the bank offering the lowest nominal rate. Perhaps in another organization, where this figure is slightly higher, the effective rate will be several percent lower. What could cause this to happen? Due to the absence of a number of commissions (for example, for maintaining an account, issuing a credit card), “voluntary-compulsory” purchase of insurance products for a smaller amount, etc. Do not hesitate to ask the credit specialist to announce exactly the EPS. And only on the basis of this value select the lending bank.

Nominal and effective interest rate

The nominal rate is a fixed value, the amount of the annual overpayment for the loan that you see on tempting advertising brochures. It does not include the cost of insurance, commissions, credit card servicing fees - all those expenses that you have to incur along with paying interest on the loan and repaying the loan.

Why is the client not immediately informed of the amount that is equal to the effective interest rate? Firstly, this value is very difficult to calculate in advance. For example, if a client is late with a payment or several installments, this value will change upward from the one that would be calculated at the beginning due to the accrual of penalties. And secondly, the bank will simply lose customers if it tells them all their real expenses.

The fact that a loan officer tells a client only a nominal rate is not deception or “fussing.” Surely in your loan agreement the overpayment that attracted you is called the nominal interest rate. Alas, it is the borrower’s omission that before concluding the contract he did not ask the operator at least about the approximate size of the effective annual interest rate.

Nominal and effective rates relative to deposits

As for bank deposits, the situation is completely different:

Nominal interest rate- a fixed amount of your annual income, expressed as a percentage. For example, 9% per annum.
Effective interest rate- this is a floating amount of your profit, depending on some conditions specified in the contract. As for deposits, it is higher than the nominal rate. This is primarily characteristic of deposits with capitalization ("compound" interest, accrual of interest on interest), when the amount of accrued interest is added to the deposit amount after a certain period, and for the next period of time interest is accrued on this already increased monetary value. An investment with 9% per annum with capitalization will bring much more profit than a similar one without capitalization. It is also important to take into account its frequency: if it occurs every month, then this is much more profitable than the case when “compound” interest is calculated every six months.

Now let's move on to the "sore" issue - loans.

Features of the effective interest rate

EPS must be specified in the loan agreement - this is prescribed by the Central Bank of Russia. But many are faced with the fact that their real costs are much higher than this value! This happens due to the fact that the bank calculates EPS according to the formula proposed by the Central Bank of the Russian Federation, which has a number of disadvantages - insurance premiums and some of your other losses are not taken into account.

We warn you that the effective interest rate is a value that will always be higher than the nominal rate even for an idealistic model of a bank that does not offer insurance packages or commissions. The reason is that here, as well as for deposits, “compound” interest and annuity payments apply: one part goes to repay the debt, and the other goes to interest on it. That is, for each month interest is accrued not only on the amount you borrowed from the bank, but also on the amount of interest you have not yet paid.

Calculation of the effective interest rate

The surest way to accurately represent your loan repayment costs is to determine the effective interest rate yourself using a ready-made formula. First of all, you need to clarify at what interval interest is accrued on your loan - every month, quarter, year, continuously, etc. And, of course, you need to know the nominal rate on the loan.

E = (1 + N/P) P - 1, where:

E is the effective interest rate:
N - nominal rate;
P is the number of interest accrual periods in one year.

If interest accrues continuously, then another formula will do:

E = e N - 1, where:

E - effective interest rate;
N - nominal rate;
e is a constant number equal to 2.718.

Alas, the given formulas do not provide for the inclusion in the result of expenses that you will definitely incur in connection with the purchase of insurance products and the issuance of certificates.

The second way to calculate EPS

Another formula that can be used to calculate the effective interest rate is as follows:

0 = (geometric progression) PV / (1 + EPS) (D p - D 1) / 365, Where:

PV - the amount of the last payment;
D p - date of the last loan payment;
D 1 - date of the first loan payment.

The calculations are complicated by the fact that to find the EPS you need to solve this equation.

Another version of the formula:

K = P 1 + ((geometric progression) P n / (1 + EPS) B n, Where:

K - loan amount;
P 1 - first loan payment (all commissions and insurance payments must be taken into account);
P n - the last payment on the loan (it is also necessary to include not only the amount of repayment of the debt body and interest on it, but also all side payments);
EIR - effective interest rate;
In n is the time of the most recent payment.
n - month of payment on the account (12th, 15th, 36th, etc.)

Alternative counting methods

The effective interest rate formula is not the only way to tell you what you will actually spend:

1. Use online calculators, which are abundantly available on the Internet, from simple to very detailed, taking into account all payments.

2. Use Excel:

The EFFECT() function will help you make calculations using the first formula.
SERIESSUM is useful for calculations using the second formula.

Thus, it can be noted that, even knowing the nominal rate, the amount of all commissions and the cost of insurance products, we ourselves (as well as a credit specialist) can only calculate the approximate value of the EIR. Independent calculations are complicated by “compound” interest, annuity payments, and the accrual of penalties in case of late payment, which cannot be predicted in advance.

What is hidden under the term “effective interest rate on deposit”? In relation to deposits, this refers to the characteristics of products whose terms provide for the capitalization of interest. Please note: the value of this parameter does not coincide with the nominal interest specified in the deposit agreement.

Features of the procedure and calculation

How does opening a deposit happen in life? A citizen visits a bank branch with a certain amount of money, which is placed in a special account. For a deposit, the credit institution assigns a specific rate - the nominal rate. All interest accrued according to it is paid at the end of the contract term.

In the case of capitalization, the scheme looks slightly different. Interest is still accrued monthly and is even issued to the owner of the deposit. But not in person, but in the form of an additional charge to the principal deposit amount. Next month, profitability is accrued on the new (increased) deposit amount. In the third and all subsequent months, the procedure is repeated cyclically. Until the deposit expires.

It is clear that with a monthly increase in the deposit amount, the accrued interest also increases. In addition, the final income that a client who places a deposit with capitalization will receive will be greater than in the case of a similar but nominal interest. Provided, of course, that the timing is the same in both cases.

Now let's look at calculating the effective interest rate on a deposit using a specific example. Then everything said above will become even clearer.

Suppose a resident of the city of Moscow decided to open a deposit for a period of one year and place an amount of one hundred thousand rubles on it. The nominal rate on the deposit is 10% (this will make it even more convenient to calculate the profitability). In a year he will receive - [one hundred thousand] + (([one hundred thousand] : ) x ) - 110 thousand rubles. Consequently, the citizen’s net income was 10 thousand.

Let's say his neighbor opened a deposit and placed a similar amount of funds on it, but with interest capitalization. If we divide the rate by the number of months in the deposit term, its average value will be 0.83%. Therefore, in the first month the income will be - ([one hundred thousand] x): 100 - 830 rubles. During the second month, interest will be charged on 100,830 rubles, and income is calculated as follows: (x): 100 = 836.89 rubles. Further calculations take the form:

(101,666.89 x 0.83): 100 = 843.84 - third month
(102,510.73 x 0.83): 100 = 850.84 - fourth month
(103,361.57 x 0.83): 100 = 857.90 - fifth month
(104,219.47 x 0.83): 100 = 865.02 - sixth month
(105,084.49 x 0.83): 100 = 872.20 - seventh month
(105,956.69 x 0.83): 100 = 879.44 - eighth month
(106,836.13 x 0.83): 100 = 886.74 - ninth month
(107,722.87 x 0.83): 100 = 894.10 - tenth month
(108,616.97 x 0.83): 100 = 901.52 - eleventh month
(109,518.49 x 0.83): 100 = 909.00 - twelfth month

Having made basic calculations, we obtain a total income of 10,428 rubles. Thus, the neighbor of our citizen from the first example will receive 428 rubles more at the end of the year.

It is noteworthy that the amount of 10,428 rubles will help us determine the effective interest rate on the deposit. To do this, you need to divide the income received by the total amount of the deposit and multiply by one hundred percent - (10,428: [one hundred thousand]) x = 10.43%. As you can see, it is slightly different from the nominal one.

In some cases, banks immediately indicate the effective rate in the contract. But, in fact, it would be more correct to prescribe the nominal one. Here you have two options: either blindly trust the bank, or recalculate the value of the specified percentage yourself. It is not difficult to do this based on the example above. In general, all other things being equal, the effective yield is approximately 0.5% higher than the nominal one.

So, novice investors who are planning to invest their savings in a bank deposit account face many difficulties.

First you need to decide on a banking company, and there are many nuances here: reliability rating, work experience, size of the structure and development of branches, proposed profitability, etc. An important factor will be the question of whether the bank is a member of the deposit insurance system together with the DIA, we talk about this.
After a company has been selected to open a savings account, it is time to select the right program that will be beneficial for the client in terms of its terms.

Here you need to pay attention to the following nuances:

What are the minimum contributions accepted;
What is the proposed investment period;
What interest rate will apply;
How often interest will be calculated and when it will be paid;
What additional features are offered, for example, is there a function for replenishing an account or partially withdrawing funds from it without loss of income?

And it is at the stage of selecting a program that you may come across such concepts as “nominal rate” and “effective rate”. How are they different and how to calculate them? We'll talk about this further.

For example: you invest 100,000 rubles for 1 year at 8% per annum, while your interest accrues monthly. Your income is calculated like this:

Thus, your income will be 7990.84 rubles for 1 year.

For our example, the income will already be 8290.07 rubles

We calculated the income that will be obtained from interest with capitalization. The effective rate itself is calculated very simply: the income received is divided by the amount initially invested by the client and multiplied by 100. i.e. 8290.07/100000*100% = 8.29%.

Independently using the formulas presented in our article;
Using an online calculator on the official website of the bank of your choice or using this link;
Or simply contact a consultant at the bank branch where you want to invest your savings.

As you can see, there is nothing difficult in calculating the effective interest rate on deposits; the main thing is to choose the method that suits you.

The effective interest rate on a deposit is a characteristic of a deposit with interest capitalization.

It differs from the rate specified in the contract - the nominal rate. Below we will look at how to calculate the effective interest rate on a deposit, but for now we will figure out what it is.

The bank sets a certain rate for the deposit. It's called nominal. If a person has made a deposit without capitalization, then at the end of the term he will receive accrued interest on the original amount.

If the client chooses, then interest will be accrued monthly. In this case, they can be issued to the client or added to the amount on the account.

Next month, interest is accrued on the new amount, along with the accrued amount for the previous month. This procedure will be repeated until the end of the deposit.

Of course, the larger the amount in the deposit account, the more interest will be accrued in the end. Obviously, for the same period, the income on deposits with capitalization is more significant than on deposits with a nominal rate.

The effective interest rate shows how the investor's money is multiplied. It is measured as a percentage and may differ from the nominal value both up and down. Using the effective rate, you can compare deposits with different conditions.

The interest rate is not an indicator of the profitability of the deposit; its properties must also be taken into account. To find out the profitability of a deposit, you should learn to calculate interest.

Of course, you can rely on the experience of a bank employee, but it is important to be able to do this yourself, taking into account both the interest rate and properties.

Two formulas are used for calculation:

To calculate simple interest that accrues at the end of the term;
To calculate compound interest when interest is calculated monthly (quarterly, annually).

To calculate compound interest, use a formula of the form: S = (P*I*j / K) / 100.

S is the amount of money that the investor will receive.

P - The initial investment amount, as well as each subsequent amount, taking into account interest accrued over the past period.

I—interest rate per annum.

j is the number of days in the period for which interest is calculated.

K is the number of days in a year.

Example of compound interest calculation

The deposit period is 3 months (January, February, March). The interest rate is 15% per annum. The initial payment is 1,000 rubles.

For January - S = (1,000 * 15 * 31 (day) / 365) / 100, S = 12.74 rubles.

For February - S = (1012.74*15*28 / 365) / 100 = 11.65 rubles (the amount of accrued interest increases every month, in this case it is lower due to the fewer number of days in February).

For March - S = (1024.39*15*31 / 365) / 100 = 13.05 rubles.

So, every month the amount of accrued interest increases, and accordingly the income on the deposit with capitalization is much higher.