What is capitalization of a deposit and capitalization of interest on a deposit? Simple and compound interest. What is capitalization of a deposit and capitalization of interest on a deposit Quarterly capitalization of interest formula
How the capitalization of a deposit in Sberbank proceeds and what this means is a question discussed in the note. Of particular interest in the topic is the fact that many citizens today seek to keep their savings as a deposit or open a savings book for subsequent crediting of funds to it.
Among the popular deposit products of a financial institution is a replenishable deposit with interest accrual. This option for opening a deposit is not suitable for all clients, since during the term of the investment the money in the account must remain intact, including interest. Let's consider the conditions and features of capitalization, as well as the procedure for registering a deposit.
It is worth understanding the terminology and defining what it is - capitalization of interest on a deposit account with Sberbank. In this case, we are talking about the regular accrual of profit, taking into account the current interest rate on the amount deposited in the book or in the deposit.
As a result of simple manipulations on the part of the bank, the amount in the account increases several times, and the depositor receives not only the money originally deposited, but also a profit. An important point is that the compound interest formula is used for capitalization calculations. That is, profit is accrued not just on the initial amount, but on the initial payment + earned profit. The more money there is in the account and the higher the income on the deposit, the greater the final amount to be received at the end of the investment period. Despite the obvious advantages of this option for “working” personal savings, the scheme has some disadvantages that a potential investor must take into account.
For which Sberbank deposits is this provided: does this option exist for plastic cards?
In order to fully understand what capitalization of interest on a deposit account with Sberbank is, you should provide the conditions under which clients can make an investment and make a profit. The bank's management strives to ensure that the current proposals of the SB of the Russian Federation cover the maximum number of clients. In this regard, even an amount of 1000 rubles will allow you to make a deposit and start receiving, albeit small, but passive income.
In order to already receive significant profits, it is worth accumulating a large amount and carefully studying the terms of investment. Every bank client must understand that the ban on cashing out deposit funds before the end of the agreement is the main requirement of the financial company. In addition, there are several options for capitalizing an investment, which differ in terms of duration:
- monthly – money is kept in the account for a month;
- quarterly – interest is accrued quarterly;
- annual – profit is accrued once a year;
- negotiable – capitalization terms are established by agreement between the bank and the client.
One conclusion can be drawn - the more often capitalization is carried out, the greater the amount to be received. For this reason, the most popular type of investment is considered to be a deposit with monthly capitalization.
Capitalization for pensioners - features of investing funds from Sberbank
Separately, it is worth paying attention to what is the capitalization of deposits in Sberbank on a pension card, since pensioners are the main clients of the bank in this area.
In addition to the opportunity to participate in existing programs on a preferential basis, pensioners can apply for a special MIR pension card or give preference to a social card in order to subsequently receive 3.5% on the account balance. Of course, the percentage is small, but with this method there is no need to visit a bank branch and draw up an agreement to open a deposit. The most popular proposals from the Security Council of the Russian Federation for deposits with capitalization include the following:
Offer from the bank | Minimum amount, in rubles | Percentage indicator, % | Deposit validity period, in months | Additional terms |
Savings | from 0 | 1,5-2,3 | No time limit | Withdrawal and replenishment |
"Save" | 1 thousand | 6,5-8,4 | 1-36 | No possibility of replenishment. You can withdraw within the accrued interest limits. |
"Replenish" | 1 thousand | 7,05-8,05 | 3-36 | Replenishment is without restrictions, and withdrawal is within percentage limits. |
"Manage" | 30 thousand | 6,15-7,6 | 3-36 | Deposits are without restrictions, and withdrawals are limited to a minimum amount. |
Potential clients should choose the appropriate type of investment based on the interest rates offered and additional opportunities.
Where can I find a deposit calculator with capitalization and replenishment?
Since capitalization of an investment means multiplying the deposited amount using the compound interest scheme, it is not possible to simply calculate the total amount receivable. The fact is that the formula used is extremely complex and few people understand.
In order not to suffer with calculations, you should pay attention to a special application - a deposit calculator. You can find such a service on the bank’s website and on third-party Internet resources dedicated to this issue.
Is this beneficial for customers?
It has already been noted that a deposit with monthly capitalization is considered the most profitable, but if there is an amount that you can temporarily forget about, then it is worth considering other methods of making a deposit.
How profitable this method of increasing such funds is also depends on external factors: the amount of the deposit, the interest rate, and the duration of the agreement.
Today, many banks offer deposits with monthly capitalization of interest on the deposit. Let's figure out what it is and how much more profitable a deposit with interest capitalization is than a regular deposit.
Click to enlarge
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, when making a deposit with interest capitalization, you get more, because... in the next period, interest will be accrued on the deposit amount + the amount of interest for the previous period.
To finally understand capitalization, let's look at a small example. Suppose you decide to deposit 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 per month. The terms of a particular deposit determine whether you can withdraw this accumulated 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 accrued not on the amount of 100,000 rubles, but on the amount of 101,000 rubles. Accordingly, the deposit 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, of course, you cannot use the amount accrued as interest on the deposit until the expiration of the deposit.
Hello, friends!
Banks today offer a wide range of deposits: with and without replenishment, with partial withdrawal, with capitalization. All that remains is to choose the most profitable one. And if everything is clear with the first two conditions, then not everyone is familiar with the third word. Deposit capitalization - what does it mean?
This is a financial term backed 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 using specific examples. And to understand, it is not at all 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 deposit amount, but also on all previously accrued interest.
For example, you deposited 10,000 rubles. at 5% per annum on normal terms. This means that in a year you can withdraw 10,500 rubles. But you decide to leave them on the account without withdrawing. Then after 2 years you will add another 500 rubles, and 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 using a very simple formula:
After 1 year we will receive: 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 addressed the definition of capitalization when I analyzed it. I compared it to 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 deposit amount.
Frequency of income accrual
Above in the formulas, we considered the option when profitability is accrued once a year. In addition to annual capitalization, there are:
- monthly,
- quarterly,
- daily.
The calculation formula will change its appearance slightly:
The letter n appears - this is the frequency of income accrual.
With monthly accrual n = 12, quarterly n = 4, daily n = 365 or 366.
Let's compare the effect of the “snowball” at different frequencies. Let's leave our original conditions.
As we can see, the more often interest is calculated, the higher our profitability. The differences seem very minor, but once again I repeat that efficiency is influenced by 4 factors:
- Initial deposit amount.
- Interest rate.
- Accumulation period.
- Frequency of income accrual.
By increasing any component, the effect will become more impressive. To illustrate, let’s create 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, a depositor 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 any more math. The formulas remain the same. In fact, there is no need to calculate anything from them yourself. 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: deposit 1,000,000 rubles. at 5% per annum for 3 years.
- Calculation of profitability with monthly accrual (the most common option in banks).
This way you can compare conditions in different banks and choose the most optimal ones for you. Please note that we did not consider the option of replenishing the deposit during the term. In this case, the profitability will be even higher. The possibility of replenishment can also be set in the online calculator.
What is the effective rate?
Another concept is closely related to the topic of the article being considered today - the effective rate. For example, on the VTB Bank website, when choosing a deposit, you will see this table with interest rates.
Here, under the regular bet, there is another one - this is the effective bet. What it is?
Effective rate – rate taking into account capitalization. She is always higher than usual. It is convenient to use when you compare profitability across several banks.
Let me remind you that n is the frequency of income accrual.
Let's calculate the effective rate, for example, for 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 it on the online calculator on the bank's website.
As you can see, the effective rate is 4.28% per annum compared to the usual 4.2%.
An alternative to depositing is interest on the balance
I would like to approach the issue at hand from a slightly different angle and look at an alternative to a bank deposit – a debit card. I will share my personal experience of using it.
We needed to split the money into different accounts in order to save for our goals. As a result, based on certain criteria, we settled on the following options:
- 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 expense transactions. The deposit period is 1 year, during which the rate does not change. At the same time, we replenish it monthly, but do not withdraw money.
- A debit card from the same bank with interest accrued on the balance.
Conditions: free service with a balance of at least 30,000 rubles. and monthly income accrual of 7.25%. It turns out that if you do not carry out transactions on the card, then every month income is accrued both on the original amount and on previously accrued interest. And the amount of income is much greater than from a deposit.
Since both the deposit and the card were opened for the purpose of saving, we did not make expense transactions. Replenishment for both products was carried out regularly every month. With such initial data, the advantages of a debit card are obvious to us:
- the ability to deposit and withdraw if necessary without any penalties,
- higher income than on a deposit,
- The card is always at hand and can be used any day of the week or time of day.
But there is also a minus: the interest on the account balance can change at any time.
There are not many offers for debit cards with interest on the balance, but they exist.
Pros and cons of capitalization
Despite the obvious advantages of capitalization, which are manifested primarily in higher returns compared to conventional interest, it also has disadvantages:
- As a rule, the bank limits the mobility of funds. That is, you cannot manage your money during the term of the contract. Of course, they will not refuse you when you state that you are closing the account and withdrawing all the money. But you will receive far from the amount 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), 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 across several offers from different banks.
- A noticeable effect from capitalization appears only in the long term. Therefore, if you are sure that you will not need a lot of money in the next few years, open a deposit with capitalization. If not, take a closer look at a regular deposit, but with the possibility of withdrawal.
Banks sometimes offer a choice of how to use accrued income: leave it in the account or withdraw it in cash (transfer to a card or account). If you choose to “withdraw interest” on your deposit, then there will be no capitalization at all. After all, you leave only the amount of your initial investment in your account.
Conclusion
At the end of the article, let’s write down with you the algorithm for choosing a deposit with capitalization:
- We determine the purpose of opening a deposit: savings, short-term or long-term accumulation, receiving passive income.
- We determine the conditions: with the possibility of replenishment, partial withdrawal or without, the initial amount, term and interest rate.
- We select several banks that best meet our criteria.
- We calculate the effective bid for each offer and make the final choice.
Don’t forget to analyze debit cards with interest on the balance. This option is for strong-willed people, because the temptation to spend everything can overcome the desire to save. But, if there is a specific goal, then temptations have no chance. Do you agree?
Capitalization of interest on a deposit account is the addition of income on the deposit to its “body”, that is, its principal amount. It increases the size of the investor’s capital, but also increases his “return” - after all, the larger the initial amount, the more the bank pays.
The easiest way to explain this term is with an example. The conditional client invested 300 thousand rubles, for which every year he can receive 10% per annum of the available amount. That is, with the annual addition of interest, 30 thousand rubles will be transferred to an already open deposit - that same 10% of the principal amount. If the investment was made for two years, then next year its owner will earn another 33 thousand rubles.
A regular deposit allows you to receive income at the end of each period into another account used by the client. That is, the income will go, for example, to your card, but the “body” of the deposit will remain the same. You can use it at your discretion: add to your existing savings or open a new deposit.
How often can capitalization be carried out? This completely depends on the agreement you enter into with the bank. Additions can be made annually, but most often the money is added monthly and quarterly. There are no restrictions on the frequency of capital increases at the legislative level, and the form of the agreement and the procedure for relations between the bank and the depositor are fully regulated by the Civil Code of the Russian Federation. Interest on the deposit can be accrued every six months - if the bank itself offers this option.
How is interest calculated?
Despite popular belief, the formula for calculating capitalization is not that complicated. You can use it to understand how much you will earn in a particular bank.
The formula looks like: T = S * (1+N/100) , Where:
- S - principal amount of the deposit,
- N - bank rate under the deposit program,
- T - total amount.
Let's use the previous example and calculate the profit from 300 thousand rubles at a rate of 12% per annum. First, let's calculate the part in brackets: 1+12/100 = 1.12. This number must be raised to a power that is equal to the frequency of adding interest earned. If the earnings are credited to your deposit once every six months (integer 1), then the degree will be equal to 0.5. We get the number 1.058.
You can calculate profitability without formulas - using online calculators. On Vyberu.ru you will find a service for calculating profitability in the card of each bank’s deposit offer. In addition, it is available on our portal, in which you can enter your preferred parameters. The system will automatically calculate your profit and select suitable programs from banks in your region.
Capitalization of interest and deposit - what are the differences?
Banks offer programs both with capitalization of interest and the deposit itself. And often clients of organizations do not quite understand the difference between these concepts.
Thus, capitalization of interest on an account is the addition of income for a certain period to existing funds at the end of each period. That is, if the addition is once a month, then the income will be added to the principal amount every month.
Capitalization of the deposit implies that interest will be accrued at the end of the contract. If you have opened a deposit for 3 years, then all earned funds will be credited to it at the end of this period, before its closure. It is possible that they are immediately paid to the client. This is beneficial if you are going to renew the contract - then both your own funds and those paid by the bank will be on the deposit.
How to choose a profitable investment?
Do you want to invest your savings as profitably as possible and make money on them? Pay attention not only to the standard conditions for placing funds - these include the interest rate, minimum amount, term, etc. Also take into account capitalization parameters.
First of all, remember - very few organizations offer daily or weekly interest accrual. Most often, profits will come to your account monthly and quarterly. The longer the period between replenishments, the less profit will be.
Banks are reluctant to renew contracts with capitalization, which can be a big disadvantage for those who invest money with a long-term perspective. This is unprofitable for credit institutions, so investors often receive a refusal - and this condition must be written down in the contract.
Another important parameter is the possibility of replenishment and partial withdrawal. For long-term deposits (from 1 year), it is worthwhile to provide for the free withdrawal (or transfer) of funds and their replenishment without terminating or renewing the agreement. This will help you maintain income, and in some cases increase savings, by reporting a certain amount, for example, every month - after each salary.
And the most important thing is an effective rate. It is calculated taking into account capitalization, so its size exceeds the rate specified in the contract. It is often used to compare offers from several banks. You can also calculate the effective rate yourself. To do this, use the formula:
- EU - effective rate;
- C - nominal rate specified in the contract;
- N is the number of income accrual periods per year (if interest is added monthly, N=12, annually N=1, etc.);
- m - repetition of replenishment periods (monthly capitalization for two years, m=12).
With this formula, you can compare deposits in several banks and choose the program that suits you.
Advantages and disadvantages
A deposit with capitalization looks like an extremely profitable offer, however, it also has its drawbacks. Thus, a program without periodic interest accrual allows you to make a profit in the short term - funds accrued at the end of each month will go to your deposit, and not to your personal account. But in the long run you will get much more income. In addition, capitalization offers are usually limited in terms of withdrawals. Thus, you will not be able to terminate the contract unilaterally or partially withdraw money.
The advantages, however, outweigh:
- The final profit is much higher than with standard deposits. The more often interest is calculated, the higher the total income.
- For those who want to save a large sum, withdrawal restrictions will only be an advantage - this way you can avoid unnecessary expenses. The savings deposit becomes practically a savings deposit.
Offers from Russian banks
Sberbank is one of the most popular banks among depositors. Capitalization of interest on the deposit account is provided for all deposits of individuals. Thus, the “” program for a period from 3 months to 3 years in the amount of 1000 rubles allows you to receive a profit of up to 5.30% (when opened online) monthly. Its main advantage is the possibility of replenishment. This also results in an increase in profitability: as soon as the amount on your deposit reaches a certain threshold, the rate also increases. In addition, the bank provides special conditions for pensioners and various social programs.
Another popular Russian bank offers to invest funds at a rate of up to 6.69%. A deposit with monthly capitalization brings maximum benefits, but the client’s options are limited - it cannot be replenished or partially cashed out. And the rate for deposits with the ability to manage funds during the term of the agreement is significantly lower - up to 3.82%.
All described programs from both banks can be used, including without capitalization.
Rates change frequently, so it is likely that recurring deposits at other banks will be more profitable. Vybera.ru contains all the deposit offers from Russian banks. An online calculator and various filters will help you understand them. Just select the desired parameters, and offers that suit your requirements will appear on the page.
One of the ways to obtain additional income for individuals is to place available funds in deposit accounts in banks. Income is generated through accrued interest, and profit maximization involves the procedure of capitalizing interest on the account.
What is interest capitalization?
The term “interest capitalization” means the accrual of interest under existing deposit agreements not only on the amount of the client’s own funds, but also on interest accrued for previous periods. That is, with monthly interest accrual, each subsequent period the amount of additional income increases.
Taxation: according to current legislation, profit received by individuals in the form of interest from placing their own funds in a bank is not subject to taxation within the established limits:
- deposits in rubles: the interest rate should not exceed the refinancing rate of the Central Bank of the Russian Federation, effective in the period for which these interests will be accrued, by more than 5 percentage points;
- deposits in foreign currency: The interest rate should not exceed 9% per annum.
The refinancing rate of the Central Bank of the Russian Federation in 2018 was set at 7.25% (in the period from March 23 to April 29).
Differences from capitalization of deposits
Capitalization is the summation of interest accrued on a deposit for a certain period with the amount of an individual’s own funds placed on a bank deposit.
Banks offer two capitalization options for individual deposits: interest capitalization and deposit capitalization. The main difference between these types of banking products is that during the deposit capitalization procedure, interest is accrued on the amount of funds initially deposited upon expiration of the deposit account agreement or immediately paid to the client. When interest is capitalized, interest is accrued monthly on the initially contributed financial assets and on the interest accrued for previous periods.
Capitalization of the deposit is beneficial when prolonging the agreement, since at the end of the agreement the account will have its own money and accrued interest, and capitalization will be carried out for the total amount.
Frequency of interest calculation
Interest on bank deposits must be paid to the client upon his request quarterly, separately from the amount of the deposit itself, and unclaimed accrued interest automatically increases the amount of the deposit (Article 839 of the Civil Code of the Russian Federation). However, agreements may provide for a different procedure: depending on the chosen banking product, interest is paid every month, quarter, half year, or at the end of the agreement.
How interest is calculated. In accordance with the Civil Code of the Russian Federation, additional income in the form of interest under bank deposit agreements begins to accrue from the next day after the funds are placed in the deposit account until the day the financial assets are returned to the client. If funds are written off before the end of the contract, interest is accrued up to and including the day of write-off.
When calculating interest without taking into account capitalization, the amount of expected income calculated by the formula:
t – number of calendar days for which interest will be accrued
K – number of days in a year.
If, for example, you deposit 15,000 rubles for 5 months at 10%, then the client’s income will be: 15,000 * 150 * 0.10 / 365 = 616 rubles 44 kopecks.
How to calculate compound interest. When capitalizing interest on a deposit, each subsequent month interest is accrued not only on the client’s fixed personal funds, but also on interest accrued in previous periods. The formula for calculating “compound” interest is as follows:
Sp – the amount of additional profit received from placing funds
P – invested personal funds of the client
I – annual interest rate depending on the type of deposit
j – number of calendar days in the period for which interest will be capitalized
K – number of days in a year
n is the number of transactions performed to capitalize interest over the entire period of validity of the banking agreement.
Practical example. The client entered into an agreement with the bank to place funds in the amount of 15,000 rubles on deposit for 5 months at 10% per annum. The agreement automatically capitalizes interest, which is accrued monthly. In this case, the number of transactions performed to capitalize interest for the entire period of validity of the banking agreement will be 5 times, and the number of calendar days in the period for which capitalization of interest will be carried out will be 30.
As a rule, a more accurate result is achieved by calculating capitalization using the simple interest formula, since the compound interest formula does not take into account the number of days in the month.
Deposits with capitalization of interest on the deposit account
Since capitalizing interest on an account is a profitable way to maximize income from investing money, many large banks offer just such deposit programs.
In Sberbank: at the moment, all Sberbank products for deposits of individuals provide the possibility of monthly capitalization of interest on the account. The highest interest rate is achieved with large amounts and without the possibility of withdrawing funds and replenishing the account (for example, the maximum interest rate on the Save deposit is up to 5.5% per annum). The minimum rate is set on savings accounts with the ability to manage finances at any convenient time
Note! Sberbank Premier has also additionally developed special products: when opening a deposit in the amount of 1 million rubles or more, the maximum interest rate is 5.91% per annum. There are also special conditions for pensioners and social contributions.
In VTB-24: the gradation of interest rates on VTB-24 deposits also depends on the possibility of early withdrawal of funds for personal purposes. Maximum interest rate on deposits: up to 6.69% per annum without the possibility of replenishment and withdrawal (for example, the maximum rate on a deposit with the ability to manage finances is 3.82%). Capitalization of interest on the deposit is carried out automatically when choosing a method for calculating interest on the deposit account.
In other banks: Some other banks have better deposit offers, but there are certain restrictions. For example, most GazpromBank deposits are opened with interest accrued at the end of the term without capitalization (in this case, profit maximization only during prolongation). Alfabank offers various deposit options, but for early termination the interest calculation is reduced: 0.005% per annum.
In all commercial credit companies, in order to obtain the highest interest rate, it is necessary to place a large amount for a long period of time without the ability to manage finances.
How to choose a deposit
- When choosing a deposit program, you must initially determine the investment goals and the need for them. If the investor needs to constantly manage the funds accrued in the deposit account, then the deposit with interest capitalization will not bring much income, since profit will be generated only from the main part of the invested funds. If an individual has enough free funds that he is ready to place for a long term, then deposits with interest capitalization are the optimal program for obtaining additional income.
- Interest Rates: The higher the deposit amount and the longer the term, the higher the interest rate provided to the depositor. Maximum rates are usually offered for deposits with interest accruing at maturity. In this case, the maximum income will be received when the contract is extended.
- Security: when choosing a credit institution, you need to familiarize yourself with the bank’s reputation, as well as the availability of funds insurance. For example, Sberbank PJSC is included in the register of banks at the Deposit Insurance Agency. The maximum amount of compensation for each separately opened deposit is 1.4 million rubles.
In what cases is this not beneficial?
When placing funds on a deposit with the opportunity to use them, it is much more profitable to open a deposit without capitalization with interest accrued at the end of the term - interest rates for such programs are higher.
Pros and cons of deposits with interest capitalization
Like any banking product, deposits with interest capitalization have certain advantages and disadvantages.
pros:
- Obtaining additional income by accruing interest on interest already accrued in previous periods;
- High interest rates when placing a large amount of money for a long period.
Minuses:
- To get maximum income, you should choose a deposit without the ability to manage finances;
- In case of early termination of the agreement, interest on deposits is calculated without taking into account capitalization.