How to save money with the help of deposits is a lesson

Dacey Rankins

Member

Joined: 2023-09-14 20:10:55

2023-11-21 16:13:39

In common practice, the concept of "deposit" is used more often in relation to individuals, customers who have applied to a banking institution for the relevant purpose, but the concept of "deposit" is used in relation to legal entities, organizations, enterprises and funds, that is, in the banking sector it is customary to say "citizen's deposit" and "legal entity's deposit".

So, a bank deposit is money placed by a citizen in a bank for a certain period of time or indefinitely and at a certain interest.

A deposit can be both cash and securities, and in general any valuables transferred for safekeeping to financial, judicial, customs or administrative institutions.

However, in everyday life, the words "deposit" and "deposit" are recognized as synonymous, and it is permissible to apply them to all categories of customers of any financial institution. The legislation does not establish clear distinctions, although it should be noted that any deposit is a deposit, but not every deposit is a deposit.

At the same time, as far as the deposit is concerned, funds or securities can be transferred to the bank for safekeeping with the right to receive them on the appropriate terms, and in relation to deposits, it is always about the interest rate and profit.

That is, by placing money in a deposit, depositors seek to preserve and increase their savings.

A bank deposit helps to reduce the depreciation of money (which can be achieved by keeping it in the form of cash, for example, at home).

Nowadays, there are a huge number of banks offering deposits with different characteristics.

Main characteristics of bank deposits:

term of the deposit;
interest rate;
Deposit amount.

There are also other features. For example:

interest accrual period (once a month, once a year or at the end of the deposit term);
the possibility of additional or partial withdrawal of funds from the account;
conditions for early closure of the deposit, etc.

Sp = P x I/100 x t/k

Sp is the amount of interest (income);

P is the amount of funds raised in the deposit;

I is the annual interest rate;

t is the number of days of interest accrual on the attracted deposit;

K is the number of days in a calendar year or months (if interest is accrued monthly).

When considering options for investing funds in a deposit, it is necessary to calculate the income that will be received at the end of the term of the deposit. Only after calculating the amount of planned income, it is necessary to make a decision on investment.

The calculation is based on the simple interest formula. It is applied if the interest on the deposit is accrued on the initial deposit amount each time during the entire term of the agreement. At the same time, the amount of accrued interest on the deposit is added to it only after its expiration or is generally transferred to a separate account.
Example:
Let's assume that Ivan put 10,000 dollars on the deposit for a period of 1 year. The interest rate is 10% per annum. It is necessary to find out: what profit will Ivan receive at the end of the term of the deposit?

Solution:
If the deposit is for 1 year, then for the term of the deposit Ivan will receive 10% of the initial amount. You can solve the problem by making a proportion:

10,000 = 100%

X - %X10

X = 10,000 x 10% / 100%

X = $1,000

Answer: Ivan will make a profit of $1,000.

When choosing the type of deposit, you should pay attention to the procedure for calculating interest.
If the interest rate on the deposit is indicated as "... % per annum", and the term of the deposit is less than a year, it is necessary to calculate this rate for the period for which the funds are placed on the deposit.
Example:
Let's assume that Ivan deposited 5,000 dollars for a period of 3 months at an interest rate of 6% per annum. It is necessary to find out: what profit will Ivan receive at the end of the term of the deposit?

Solution:
First, you need to calculate the interest rate for a period of 3 months.

3/12 = 1/4 = 0.25

The interest rate for 3 months will be:

X -> 1,5%

X = 5,000 x 1.5% / 100

X = $75

Answer: Ivan will make a profit of $75 in three months.

A floating rate is when the interest rate initially set under the contract can change over the entire term of the investment. The terms and procedure for changing the rates are stipulated in the bank deposit agreement. Interest rates may change due to changes in the refinancing rate, changes in the exchange rate, the transfer of the deposit amount to another category, and other factors. In this case, when calculating income, it is necessary to determine the percentage for the first period, then for the second, and eventually sum them up.

Dacey Rankins

Member

Joined: 2023-09-14 20:10:55

2023-11-22 20:07:03

In addition to the simple interest formula, deposit income can be calculated using the compound interest formula.

The compound interest formula is applied if the amount of accrued interest is transferred to the deposit account instead of a separate account each time. So, after each accrual of interest, the amount of the deposit increases, and in the new period, interest is accrued on the new amount.

The addition of accrued interest to the principal amount of the deposit is usually called interest capitalization.

The concept of "capitalization" is here equated with the concept of "accumulation."

The compound interest formula is as follows:

Sp = P x ( 1 + +I/100 x j/k )

(I) is the annual interest rate; (j) is the number of days or months in the period at the end of which the bank capitalizes the accrued interest; (K) is the number of days or months in a calendar year;

– annual interest rate;

(P) is the initial amount of funds raised for the deposit;
(n) is the number of transactions to capitalize accrued interest during the total term of borrowing funds; (Sp) is the amount of money due to the depositor at the end of the term of the bank deposit, which consists of the amount of the deposit with interest.

Mike made a contribution in the amount of (10,000) dollars for a period of (3) months at a fixed rate (10)per annum. Interest is accrued on a monthly basis. What will be the amount that Mike will receive?

Solution:

Since interest is accrued monthly, the number of transactions for capitalization of accrued interest ($n$) during the year will be

Since interest is accrued on a monthly basis, the number of transactions to capitalize accrued interest

Sp = 10,000 x ( 1 + 10/100 x 1/12 ) *3 = 10252.09 Dollars

Answer: $10,252

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How to save money with the help of deposits is a lesson

Dacey Rankins

Dacey Rankins