Capitalization of interest as the most optimal way of accumulating money

In the modern world, people are increasingly in contact with financial institutions, such as banks. Sometimes this applies to consumer lending or payment for utility services, but more often it is a desire to open a deposit account in its own name. To date, the bank deposit is one of the most popular ways of saving and guaranteed stable increase in cash among individuals. After all, you can not hide that we are motivated by the power of love for money and the increase in their number in our wallet. This is the main reason for the country's love for deposit products.

Faced, the first time with a "long" list of bank deposits, you can get a little confused and confused, in what is really best. But eventually you begin to understand the meaning of the beautiful phrase "capitalization of interest", and that this is the best option in order to get the most amount of cash. Let's get acquainted with this concept.

Capitalization of interest is the transfer of interest to the amount of the deposit with a certain frequency specified in the contract, as a result of which the amount of the deposit by the end of the period considerably "grows up". Simply put, it is the accrual of interest on a percentage, which in the financial sphere is called a "compound interest".

At first glance, it seems that a contribution with a capitalization of interest brings more income. In fact, such a conclusion is ephemeral, because the rule works only in the case of equal annual interest rates. Naturally, the monthly capitalization of interest allows you to receive an increased income in comparison with other types of deposit similar interest rates, only without capitalization, and accumulate cash, by accruing interest. And it's very good for the consumer, that's why I like it so much.

Capital deposits are now offered by all banks without exception, because this option is the most popular among individuals. According to statistics, seven deposit products out of ten - with capitalization, the only difference is the frequency of charging. Monthly interest capitalization is more popular, as well as quarterly. The capitalization of the enterprise is of interest not less than people. After all, if there is free money in circulation, why not invest it in a bank and then receive an unlimited 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 amount of investment and rate. However, do not forget that the advantages, like the disadvantages, are determined in comparison with the analogs. Very often, a deposit with a capitalization has an interest rate lower, which in some cases places it in equal rights with another form of investment. That is, in both cases, you can select interest rates so that the "efficiency" of the deposit with and without capitalization will be the same.

Capitalization of interest will give the client the maximum income, if you choose between deposits with the same rate. Only in this case it will bring an 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 a deposit product should be approached wisely, especially if the amount of money is decent. After all, it's one thing to get interest at least $ 10 less, and quite another, if at 1000. This is a tangible difference and you do not want to lose it. So remember, some basic simple rules that need to be guided when choosing the type of deposit.

Capitalization of interest will work for one hundred percent if the rate corresponds to other products without compound interest. So, when studying products, pay attention to the absolute value of interest, and capitalization. Well, do not forget about the period of the deposit and the frequency of charging interest, because of these factors, final income depends not less than the rate.

And one more thing, the main drawback of a deposit with a compound interest is the absence of the possibility of early termination. That is, wanting before the time to return their funds, all interest will be recalculated at the rate of the deposit "poste restante". And this is essentially a penny!

Applying 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 liked options for deposits. In general, this choice should be guided by your own goals, that is, if there is a goal of accumulating money - the capitalization of interest suits you perfectly!