What is capitalization

Capitalization of the deposit is the accrual of interest on the amount that was invested initially, with their further accumulation and the subsequent accrual of interest on the entire amount received. Sometimes such a procedure is called compound interest.

Let's take a closer look at the question of what capitalization is. This method is used by banking structures for various kinds of deposits, as well as for a number of loan products. As features of capitalization it is possible to allocate the increased benefit developing at thus. Usually, interest on this method is charged monthly or quarterly, but the periods can be different. These points should be taken into account when opening an account, that is, when deciding that you want to entrust your bank with your financial savings. In the contract in this case, the size of the interest rate, the periods of accrual and the terms of capitalization, including. Interest is accrued only for the number of days that the funds were present in the bank account, as well as the conditions for payment of interim interest on the deposit by means of their attribution to the amount of funds already available on the account.

About what is capitalization, you have already learned, now we can say about the timing. Usually they are periods of time in which interest is accrued on the funds invested for saving, with the addition of additional interest. Banks set the periods of capitalization on their own, taking into account the adopted policy of conducting transactions with clients' accounts.

It is important to note that there are different types of terms and periods of interest capitalization. First of all, we are talking about a one-time capitalization of interest. In this case, interest is accrued at the end of the term of the investment, in addition, it is provided for the possibility of prolonging the deposit and additional interest accruals. If we are talking about the annual capitalization of interest, it is usually possible to talk about deposits that are designed for two or more years. And interest is calculated at the end of each period. Capitalization can be even daily.

You already understand what is the capitalization of the contribution, it remains now to choose one or another kind, relying on the investment period. It turns out that if the depositor is absolutely convinced that he will not need funds for a long time, he can choose for himself a contribution with an annual capitalization. In the case where there is no such certainty, it is worth choosing deposits with periods of capitalization much shorter.

If with the question what is capitalization, everything is clear, then let's outline the basic rules that are worth knowing if you are faced with a bank deposit with a similar feature. When studying the proposals of banks should pay attention to capitalization, since such deposits are more profitable at a lower interest rate than those with a percentage initially higher. However, it is foolish to believe that compound interest is always more profitable. It may turn out that a deposit with a capitalization will yield less income, it all depends on the policy of the bank and the products offered. It should be noted that the final rate on the deposit may be significantly higher if the capitalized interest is paid at the end of the term, and not at the request of the client. In some proposals, the deposit rate may depend on the accrual of interest and the method of payment. Many Russian and foreign banks have long offered deposits with the possibility of capitalization, so there should not be any problems with choosing the right organization.

Now you know what capitalization is and what advantages it gives.