What is the bank interest?

Bank interest appeared with the advent of banks. Although in the extreme antiquity there was a practice of lending something with the demand to return a larger quantity of the product. It must be said that the ancient philosophers of usury did not approve, because believed that money does not have its own value, because they were not at the time of the Creation of the world by the Most High. And what has no intrinsic value can be transferred to another person free of charge without loss for the initial owner. The tradition of treating one of the most common banking transactions in this way is preserved in Islamic culture. In the modern form, bank interest began to exist from the 17th century, when trade among middle-class people was actively developing.

Many economic processes depend on the size of this parameter. But you need to take into account that the bank interest - the concept is wide enough. There are at least three of its varieties:

- the interest rate on deposits and deposits, which the bank pays to the person who placed their money in a credit institution;

- interest on loans, which must be paid by the one who borrowed from the bank;

- interest on interbank loans, which banks pay each other when they place temporarily free cash.

It is believed that a high bank interesthas a negative impact, because it reduces business activity by raising the cost of capital. For those who place money on a deposit, this is probably good. But this increases the interest rates on loans, reduces the number of individuals and organizations who would like to take advantage of a loan from the bank, which ultimately leads to a reduction in deposit rates.

When the rate of bank interest decreases,all participants in economic processes can get more inexpensive funds invested in the creation of productive capacities, stimulate trade processes, which leads to an increase in the number of jobs, large volumes of production, the collection of a larger amount of taxes at the same rates, etc. Therefore, the state has long sought to regulate these processes by applying the impact on the discount rate, tax legislation and the deposit insurance system of the population.

Bank interest on deposits is calculated on the basis ofbased on the terms of the contract, which may include the payment of interest at the end of the deposit period or interest payment, for example, quarterly until the end of the deposit. In another way, interest is calculated if, for example, they are accrued on a monthly basis and are not withdrawn at the same time. In the simplest case, to determine the income from the deposit, you need to multiply the deposit amount by (1 + interest rate 100 * deposit placement time in days 365 days per year).

Interest that the client pays the financialorganizations on the loan, also depend on a number of reasons, including on the way of repayment of the taken amount and interest. They can be returned together (the interest and part of the loan is paid), the annuity method (repayment in equal installments) and payment of the principal amount of the loan only at the time of repayment. Here it is interesting that at a single interest rate and different methods of accrual, the total amount paid to the bank may differ slightly.

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