What does capitalization of interest on a deposit mean. What is the capitalization of a contribution: we analyze it with an example

Today, many banks offer deposits with monthly capitalization of interest on the deposit. Let's see what it is and how much more profitable a deposit with interest capitalization is than a regular deposit.

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Understanding this concept is not at all difficult. Monthly capitalization is the addition of interest on a deposit for a certain period to the deposit itself. Thus, with a deposit with interest capitalization, you get more, because. in the next period, the interest will be calculated on the amount of the deposit + the amount of interest for the previous period.

To finally understand the capitalization, let's take a look at a small example. Suppose you decide to put 100,000 rubles in the bank at 12% per annum.

Deposits without interest capitalization:

In total, 112,000 rubles will be accumulated over the year - 1,000 rubles a month. The conditions of a particular deposit determine whether you can withdraw this accrued interest from the account or not.

Deposit with monthly interest capitalization:

At the end of the first month, the amount of your deposit will be 101,000 rubles, and in the next month, interest will be charged not on the amount of 100,000 rubles, but on the amount of 101,000 rubles. Accordingly, the contribution will bring not 1000 rubles per month, as it was before, but 1010 rubles.

Interest will be added to the main deposit, which allows you to slightly increase the return on the deposit, however, at the same time, of course, you cannot use the amount accrued as interest on the deposit until the deposit expires.

The modern banking system includes many financial and credit organizations, whose work is based on competent management, both with their own funds and attracted in the form of deposits. Free funds of individuals and legal entities can be attracted, while the activity of attraction and the amount of interest rates depend on how much the bank needs additional resources. For example, the more clients a bank has, the more funds it needs.

There are many types of deposits, but the most beneficial for the client is such an investment of free funds, which provides for the capitalization of interest on the deposit. Therefore, when choosing a suitable type of deposit, one should clearly understand the meaning of 2 concepts: “deposit capitalization” and “deposit interest capitalization”.

Capitalization of the deposit

When drawing up an agreement to open a deposit, a bank client does not have to face such difficulties as when applying for a loan, for example: granting or passing, but he will definitely get acquainted with the “capitalization” parameter. What it is?

Capitalization of a deposit is an increase in its amount by the amount of accrued interest.

If explained more easily, this is the addition of interest to the balance of the contribution after a certain period of time.

During the capitalization of the deposit, interest is added to the amount of the deposit, which, upon expiration of its term, is transferred to the current account of the depositor. The calculation of interest during the capitalization of the deposit is each time based on the amount originally deposited, so their amount does not increase over time.

Types of capitalization of deposits depending on the conditions of placement:

• Annual- the most rare, it applies to long-term deposits. The amount of interest is calculated at the end of each year and is added to the deposit.
• Quarterly- occurs more often than the previous one. Interest is calculated every 3 months.
• monthly- interest is calculated at the end of each month.
• Daily- implies the accrual of interest every day. It is classified as a temporary phenomenon, so it can be considered an exception.
• At the end of the term- interest is accrued once, after the expiration of the deposit, when the depositor receives money.

Example: Let's say you are entitled to 100,000 rubles at 11% "annual". The term of the deposit is 12 months. Let's take 2 years as an example.
According to the agreement, the accrual of interest is carried out at the end of the term (after 12 months). A new contract was concluded for the 2nd year (for the same amount and at the same percentage).

The annual yield of the deposit is 11,000 rubles. (100,000 rubles × 11% / 100% = 11,000). With the annual re-registration of the deposit, the income for 2 years will be 22,000.00 rubles. (11,000 × 2).

Simple interest

We have given the most simple example, the calculation of which will not be difficult. But what about the monthly, quarterly capitalization of the deposit, when the contract is extended a large number of times? Here the simple interest formula comes to the rescue: where:

The sum of simple interest ( Sp) is calculated by the formula:

The simple interest formula is used if the interest accrued on a deposit is added to it either only at the end of the deposit term, or is not added at all, but is transferred to a separate account.

Example: suppose the bank accepted a deposit in the same amount as in the previous example - 100,000.00 rubles, but for a period of 30 days. The fixed interest rate is the same - 11% per annum. Applying the formulas, we get the following results:


Now let's change the conditions a bit: the bank took a deposit in the same amount, but for a quarter (90 days) with the same fixed rate - 11% "annual". Only the investment period has changed.


Comparing both examples, we see that the amount of monthly accrued interest remains unchanged:

Capitalization of interest on the deposit

Deposits with interest capitalization have some similarities and differences. Interest in this case is also charged at the end of a predetermined period of time (year, quarter, month), but they are charged not on the “body” of the deposit, but on the “body” + previously accrued interest.

Capitalization of interest is the addition of interest to the amount of the deposit, which makes it possible to accrue interest on interest in the future.

In case of placement of funds with the possibility of capitalization of interest on the deposit accrued interest is not only added to the deposit amount, but also participate in further accrual. This means that with each subsequent accrual, the amount of the deposit becomes larger by the amount of accrued interest. As a result, interest is accrued on interest, due to which the effective rate on the deposit increases significantly.

Example: take the initial data. In the case of capitalization of interest on a deposit, the table will look like this:

At the time of the prolongation of the deposit for the 2nd year, its amount, taking into account the capitalization of interest, amounted to 111,000.00 rubles. The profitability of the deposit for 2 years amounted to 34,210.00 rubles. (11,000.00 + 23,210.00), including profitability only due to capitalization of interest compared to the previous option amounted to 12,210.00 rubles. (34,210.00 – 22,000.00 = 12,210.00).

Compound interest

The above example of calculating income on a deposit that provides for the capitalization of interest is as simple as possible. To calculate income under conditions of any complexity, apply compound interest formula:
,where:

To calculate compound interest only, apply the following formula: ,
where Sp- this is the amount of interest (the remaining values ​​\u200b\u200bare the same as in the previous formula).

The compound interest formula is used if interest on the deposit is accrued at regular intervals(every month, every quarter), that is, the calculation provides for the capitalization of interest (when interest is accrued on interest).

Example how to calculate compound interest and bank deposit amount with compound interest. The bank took a deposit in the amount of 100,000.00 rubles. for a quarter (90 days) with the same as in the previous examples, a fixed rate - 11% "annual" and with monthly interest. This means that in 90 days 3 (90:30) transactions will be made to capitalize the accrued interest.
So we have the following data:
I = 11%; K= 365 days; J= 30 days; P= RUB 100,000.00; n = 3 periods. What will be the amount of interest (Sp)?

Now let's determine the amount of this deposit:
S \u003d P + Sp \u003d 100,000.00 + 2736.93 \u003d 102,736.93 rubles.
Let's check the correctness of the calculation using the compound interest formula:

And now let's compare the income for the same period and with the same interest rate (3 months, 11% per annum) in the case of simple and compound interest. In the first case, the amount of the deposit amounted to 102,712.33 rubles, and in the second - 102,736.93 rubles. As you can see, there is a slight discrepancy in favor of interest capitalization (compound interest). If the capitalization period and, accordingly, the number of periods is longer, then the difference will become noticeably more noticeable, as can be seen from the graph below.

Capital growth: simple interest and compound interest (11% per annum)

conclusions

If we compare deposits that imply periodic interest payments and deposits with interest capitalization, then the advantage of the latter is a higher level of income. Such a profitable placement of free funds is an ideal option for clients who do not want to withdraw interest at the end of the month (quarter, year). Those who wish to learn how to make more complex financial calculations should familiarize themselves with.
As for the topic described in this article, a deposit with a monthly capitalization of interest and a low interest rate is more profitable than a deposit that implies a high interest rate, but with interest accrued, for example, once every six months.

Real income for a specific period and the interest rate are different things, so you need to objectively evaluate the tempting and high interest rates on deposits.

4.5 (90%) 2 vote[s]

The most popular way of keeping money among the population of our country is bank deposits. This is really the most convenient and reliable way to store money for a short period. In this article, we will analyze in detail the issue of deposit capitalization, what it is and what it means, whether it is worth choosing this option.

1. What does the capitalization of a deposit or interest mean?

Capitalization of the deposit allows you to increase the final profitability. The effect of this increase is most noticeable over a long period of time.

Note

In our article, contribution means the same as "deposit".

Banks offer several options for the frequency of interest capitalization payments

• monthly (most often)
• quarterly (less frequently)
• annually (in the case of a period of more than a year)

Most deposits offered by banks do not include capitalization services. Usually, on average, only every fourth banking offer has such an opportunity.

The information about the deposit with capitalization may also indicate the "effective interest rate", let's find out what it is.

2. What is the effective interest rate

Effective interest rate- this is the percentage by which the invested amount will actually increase at the end of the term

For example, there is a rate stated in the contract of 12% per annum with a monthly addition of interest to the deposit amount. In fact, for the year we will earn 12.68%, which means that the effective interest rate will be 12.68%, i.e. it is 0.68% higher than the base rate due to the fact that interest is also charged on previously paid amounts.

Thanks to the capitalization of the deposit, compound interest is realized. In the article "How to calculate interest on a deposit" You can learn more about this concept.

Consider a table with examples.

3. Compound interest on a deposit - examples of calculations

We will give calculations with different terms and percentages in order to clearly understand the difference.

Below is a table with examples of different deposit terms and rates. In each case, the option of monthly interest capitalization is enabled

As we said above, the longer the term of the deposit, the more noticeable the effect of compound interest.

4. Formula of capitalization of the deposit

There is a simple formula for calculating the capitalization of a deposit (compound interest):

K \u003d S × (1 + r / m) n

• K - the total amount that the client will receive at the end of the contract;
• S is the initial investment amount;
• r – annual interest rate;
• m is the number of accrual periods per year (most often 12);
• n - term;

5. What is more profitable: a deposit with or without capitalization

Offers of banks with interest capitalization have a slightly lower rate than without it. For example, 7% regular rate and 6.7% with capitalization.

What is more profitable? You can check the effective interest rate with a bank employee and immediately understand what is more profitable. But most likely it will be plus / minus the same amount.

Most often, deposits with monthly accruals allow you to withdraw part of this amount, which is sometimes very important for a depositor. Therefore, it is worth focusing on this moment: whether you will withdraw interest or whether you do not have such a need.

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Candidate of Economic Sciences, occupation: teacher. Date: January 9, 2020. Reading time 8 min.

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Bank deposits have different investment conditions and % accrual. Most of the credit institutions use the practice of raising customer funds with the help of profitable products. For example, capitalization of interest provides for the periodic accrual of compound% on the initial payment. The process is specified in the contract, can be carried out monthly, quarterly, once a year, at the end of the contract.

If there are free funds, any citizen takes the opportunity to earn extra money, including by placing money on deposits. Profit accumulates accrued interest. But banks do not stop there and calculate further bonuses taking into account the previous ones.

Capitalization of interest on a deposit account is the accrual of profit not only on the principal amount, but also on income from it in the past. That is, in each new period of time, the capital will systematically grow. Profit depends on the amount and term of the deposit.

Quote : "The most outstanding discovery of man is compound interest," - Albert Einstein.

A few facts on the topic:

1. With the help of capitalization, the interest accrued periodically on deposits and the volume of investments are summed up.
2. Terms are indicated in the contract as monthly, quarterly, annual.
3. This concept should be distinguished from the capitalization of the deposit, when bonuses are accrued only on the initially deposited amount.
4. The compound interest formula is used to calculate.
5. The product is offered by all credit institutions that exist on the Russian market.

Reference. There are many bank offers on deposits with capitalization, but they have a significant drawback: the percentage on these accounts is less than on ordinary deposits.

Bonus accrual

Russian legislation provides for the rules for the operation of credit institutions. Documents describe all aspects of customer relationships. The norms for paying remuneration for the use of a bank deposit are regulated by the Civil Code of the Russian Federation (Article 839).

Capitalization provides for quarterly accruals, which, if not claimed, are added to the principal amount of the deposit. But credit institutions may indicate in contractual obligations other terms for paying bonuses, for example, monthly or once every six months, and sometimes at the end of the agreement period.

The Civil Code fixes the accrual of interest from the next day after depositing money to the deposit and until the last movements on the account. The calculation is made using an online calculator or a specialist of the bank department, but you can also calculate the income yourself.

The usual formula for calculating interest is:

Additional profit (DP) = Initial amount (PS) * days in the period (DnP) *% rate / day. per year (DnG) * 100.

Example . 10,000 rubles have been contributed. for 6 months at 6%. From here, the income will be: 10,000 * 180 * 0.06 / 365 = 295 rubles. 89 kop.

Capitalization is calculated using compound interest, which is also used in loan products:

DP \u003d PS * number of operations - PS.

Example . 10,000 rubles have been contributed. for 6 months at 6% per annum. Under the agreement, monthly interest capitalization is carried out, that is, there will be 6 interest accrual operations for the period, each from 28 to 31 days. For clarity, it is better to use the simple percentage formula at intervals.

Table 1. Calculation of income for six months with monthly capitalization

reference . It is worth distinguishing between the frequency and capitalization of interest accrual. Since % can be calculated monthly, and added to the principal amount - quarterly.

What is more profitable

It is better to talk about how to invest free funds if there is a good example. On the chart, for example, you can see how profitable it is or not to use a deposit with a monthly capitalization.

For example, there is a need to invest 100 thousand rubles. for 10 years with an annual profit of 10%.

In the first year, it makes no difference to conclude a contract without capitalization or with it. Profit using complex calculations begins to grow significantly only from the second year. The exception is cases when the terms of the contract provide for a higher percentage for transactions without capitalization. In this case, banks are cunning, since the money on all deposits will grow evenly over several periods.

At 12% per annum, income will begin to differ (from 10% with capitalization) only after 4 years. The profitability of the conditions can be calculated using an online calculator or clarified with a bank specialist.

Compound interest brings more profit, this difference becomes more significant over time. The product helps to earn high capital, you just need to be patient. Such investments are designed for the long term.

The amount at a yield of 10% will grow by about 5 times in a few decades. As can be seen from the graph, investments have increased by more than 150% over 10 years.

Quote . “Under conditions of uncertainty, long-term deposits for several years also become uninteresting: customers are afraid to give money to the bank for so long…,” says Mikhail Matovnikov, chief analyst at Sberbank. Source: Vedomosti

With different types of capitalization with a deposit of 100 thousand rubles. for a five-year period at 8% per annum, there will be different indicators of the final income.

Table 2. Calculation under different conditions for accruing%

The more capitalization, the higher the profit.

banking products

Deposits with interest capitalization are a common phenomenon. Each credit institution has its own popular deposits that are profitable in a given period of time. For example, in Sberbank, the “Save” product can bring the owner a profit, depending on the amount invested - from 2.95 to 4.75%.

Before concluding a contract, the client must familiarize himself with the contract, study all the pros and cons. Many lending institutions are tricky with the terms of the loan. If there is no complete information on the site, it is better to clarify the nuances with a department specialist.

Table 3. Top deposits

Hello, friends!

Banks today offer a wide range of deposits: with and without replenishment, with partial withdrawal, with capitalization. It remains only to choose the most profitable. And if everything is clear with the first two conditions, then not everyone is familiar with the third word. Capitalization of the deposit - what does it mean?

This is a financial term backed up by a mathematical formula, so not everyone can understand its meaning. In the article I will explain everything in simple words and show the principle of operation with specific examples. And for understanding it is not necessary to have any special knowledge in the field of economics and banking.

Capitalization – this is the accrual of interest not only on the initial amount of the deposit, but also on all previously accrued interest.

For example, you put 10,000 rubles. at 5% per annum under normal conditions. This means that in a year you can withdraw 10,500 rubles. But you decide to leave them on the account without withdrawing them. Then after 2 years you will add another 500 rubles, after 3 years another 500 rubles. etc.

Subject to annual capitalization, after 1 year you will also receive 10,500 rubles, after 2 years you will already withdraw 11,025 rubles, after 3 years - 11,576.25 rubles.

All my calculations were made with a very simple formula:

After 1 year, we will get: 10,000 * (1 + 0.05) = 10,500 rubles.

After 2 years: 10,000 * (1 + 0.05) ^ 2 = 11,025 rubles.

After 3 years: 10,000 * (1 + 0.05) ^ 3 = 11,576.25 rubles.

I already turned to the definition of capitalization when I analyzed . I compared it with a snowball: the higher the initial amount of money in the account and the longer the accumulation period, the higher the profitability. But the effect depends not only on these two factors, but also on the frequency of accrual of interest on the account. Let's see how this affects the change in the amount of the deposit.

Frequency of accrual of income

Above in the formulas, we considered the option when the yield is calculated once a year. In addition to annual capitalization, there are:

• monthly,
• quarterly
• daily.

The calculation formula will change its appearance a little:

The letter n appears - this is the frequency of accrual of income.

With monthly accrual n = 12, quarterly n = 4, daily n = 365 or 366.

Let's compare the action of the "snowball" at different intervals. Let's leave our initial conditions.

As we can see, the more often interest is charged, the higher our profitability. The differences seem very insignificant, but once again I repeat that 4 factors affect the efficiency:

1. The initial amount of the deposit.
2. Interest rate.
3. accumulation period.
4. Frequency of accrual of income.

With an increase in any component, the effect will become more impressive. To illustrate, let's make a similar table, but change the conditions:

• initial amount - 1,000,000 rubles,
• term - 5 years,
• rate - 7% per annum.

The presented calculation formula applies to any frequency, including daily. But, having studied the offers of banks, I did not find such conditions. If necessary, you can now do the calculations yourself.

Calculation of profitability with and without capitalization

More often, the investor needs to compare not the options for calculating interest, but calculate the amount of the deposit with and without capitalization. I won't bore you with more math. The formulas remain the same. In fact, there is no need to independently calculate something on them. There is a convenient online calculator with capitalization for different periods and frequency.

Let's use one of them and see how our income changes in two options: a contribution of 1,000,000 rubles. at 5% per annum for 3 years.

• Calculation of profitability with monthly accrual (the most common option in the bank).

Thus, you can compare conditions in different banks and choose the most optimal for you. Please note that we did not consider the option of replenishing the deposit during the term. In this case, the yield will be even higher. The possibility of replenishment can also be set in the online calculator.

What is an effective rate?

One more concept is closely connected with the topic of the article considered today - the effective rate. For example, on the website of VTB Bank, when choosing a deposit, you will see the following table with interest rates.

Here, under the regular rate, there is another one - this is the effective rate. What it is?

The effective rate is the rate taking into account capitalization. She is always taller than usual. It is convenient to use it when you compare the profitability of several banks.

I remind you that n is the frequency of income accrual.

Let's calculate the effective rate, for example, on the "Save" deposit from Sberbank. We put 100,000 rubles. at 4.2% per annum for 1 year with monthly capitalization. The effective rate will be:

Let's check with the online calculator on the bank's website.

As you can see, the effective rate is 4.28% per annum, with the usual 4.2%.

An alternative to a deposit - interest on the balance

I want to go a little from the other side to the issue under consideration and analyze an alternative to a bank deposit - a debit card. I will share my personal experience of using it.

We needed to spread the money into different accounts in order to accumulate for our purposes. As a result, according to certain criteria, we settled on the following options:

1. Deposit "Renaissance Accumulative" in the bank of the same name.

Conditions: rate of 6.75% per annum with monthly accrual of income, the possibility of replenishment, but without debit transactions. The term of the deposit is 1 year, during which the rate does not change. At the same time, we replenish it monthly, but do not withdraw money.

1. Debit card of the same bank with interest on the balance.

Conditions: free service with a balance of at least 30,000 rubles. and monthly accrual of income in the amount of 7.25%. It turns out that if you do not carry out transactions on the card, then every month the income is accrued both on the initial amount and on the previously accrued interest. And the amount of income is much more than the contribution.

Since both the deposit and the card were opened with the aim of saving, we did not make debit transactions. Both products were replenished regularly every month. With such initial data, the advantages of a debit card are obvious to us:

• the possibility of replenishment and withdrawal if necessary without any penalties,
• more income than on a deposit,
• The card is always at hand, you can use it on any day of the week and time of the day.

But there is also a minus: the interest on the account balance can change at any time.

There are not so many offers for debit cards with interest on the balance, but they do exist.

Pros and cons of capitalization

Despite the obvious advantages of capitalization, which are manifested primarily in a higher yield compared to the usual interest calculation, it also has disadvantages:

• As a rule, the bank limits the mobility of funds. That is, you can not manage your money during the term of the contract. Of course, you will not be refused when you declare that you are closing the account and withdrawing all the money. But you will receive far from the amount that you expected when you opened the account. Not all banks allow you to withdraw money without losing all or part of your income.

For example, if you decide to close the “Save” deposit in Sberbank ahead of schedule (100,000 rubles for 1 year), then you will receive 2,862.61 rubles in your hands. less.

• Banks often charge a lower rate on capitalized deposits. Therefore, it is very important to calculate the effective rate and compare it for several offers in different banks.
• A noticeable effect of capitalization is manifested only in the long run. Therefore, if you are sure that in the next few years you will not need a lot of money, open a deposit with capitalization. If not, look at the usual deposit, but with the possibility of withdrawal.

Banks sometimes offer to choose the option of using the accrued income: leave it on the account or withdraw in cash (transfer to a card, account). If you choose to “withdraw interest” on the deposit, then there will be no capitalization at all. After all, you leave on your account only the amount of the initial investment.

Conclusion

At the end of the article, let's write with you the algorithm for choosing a deposit with capitalization:

1. We determine the purpose of opening a deposit: savings, short-term or long-term accumulation, receiving passive income.
2. We determine the conditions: with the possibility of replenishment, partial withdrawal or without, the initial amount, term and interest rate.
3. We select several banks that best meet our criteria.
4. We calculate the effective rate for each offer and make the final choice.

Do not forget to analyze debit cards with interest on the balance. This option is for strong-willed people, because the temptation to spend everything can defeat the desire to save. But, if there is a specific goal, then temptations have no chance. Do you agree?