Capitalization of the deposit - what does this give the depositor?

When familiarizing with the range of deposit products offered by banks, the phrase "capitalization of the deposit" is often found. What it is, and what advantages it promises to the depositor, one must know to all who are going to conclude a deposit contract with the bank.

The procedure for calculating interest income can be based on a simple or complex formula. Simple interest is calculated by multiplying the amount of the deposit by the yield rate. Dividing the obtained number by 100, you can determine the income that is generated with a simple deposit.

Compound interest is calculated differently. The interest accrued for a specific period is added to the main contribution, and further accumulation occurs on the basis of the increased amount of the deposit. So, the brick for the brick invested money "grow up". This process of calculating interest on the "amount plus interest" is the capitalization of the contribution. What this can bring to the depositor is quite obvious. The growth of money in comparison with a simple deposit can be very significant, depending on the method and periodicity of capitalization.

If the accumulation of interest will occur at a time, at the end of the term of the deposit agreement, it will be less beneficial for the depositor than the monthly interest income. Using the online calculator of deposits with capitalization, which is built into the service of almost any bank, you can see the regularity: the less the interest accrual period, the higher the final result. The optimal option can be considered the capitalization of interest once a month.

Analyzing the conditions and parameters of different contributions, one can find the following regularity: deposits with conditional capitalization have a lower rate of return. Credit institutions often go for such a small trick - they willingly explain how profitable the capitalization of the deposit. That this is due to the lowering of the interest rate by 0.5-1 point per cent, they are silent.

Another aspect may be important for the depositor. The most advantageous combination of conditions and parameters of the deposit are deposits with capitalization and replenishment of the account. This is absolutely transparent dependence: having the opportunity to increase the amount of investment, the depositor thus increases the interest due to him. So, he can be assured of a high level of income for such a deposit. Not the last role, of course, is played by the term of placing money in the bank at interest.

Thus, having considered the question of how profitable the capitalization of the deposit is, that this will bring an obvious profit, one should nevertheless be attentive to the choice of the type of deposit. The best option for the depositor will be the exact calculation of all dividends due, which a bank employee can make upon the personal appeal of the client to the credit institution. Then, based on specific figures, you can make the final choice. A careful study of all the terms of the contract, accuracy and punctuality in calculating interest - guarantee that the depositor will be profitable.