bank interest
Bank interest is the amount of money that is agreed upon to be paid by one party to another, and it may be a percentage that constitutes a value of the additional money over the original amount of money. Bank interest is also defined as the benefit that a banking entity achieves from another financial or financial entity. An individual in his personal capacity, or a company that wants to obtain an amount of money within the financial loans, which entails the financial interest. Another definition of bank interest is a financial share imposed on deferred business; That is, the payment of its financial value is postponed for a specific and agreed period of time between all parties, and the interest is a legal right that must be paid. In the form of specific payments within the value of the loan, or before it, or based on a prior agreement.
bank interest calculator
The calculation of bank interest is the method that is used to determine the financial ratio imposed on the amount of money, so the method of calculating it differs between deposits and loans. and loans:
Interest on deposit
Bank interest on short-term deposits and loans is calculated on the basis of simple interest, which is a sum of money that is added to the original value of money, which depends on following the flow of financial payments over a specific period of time; Whether it is daily or monthly, the interest rate is multiplied with the principal amount of money with its number of years.
Example of simple interest (interest on deposits): A person deposited a deposit in the bank of 150,000 dinars for a period of three years, and the interest rate offered by the bank was 6%. What is the method of calculating the interest on the amount of the deposit?
The solution: apply the mathematical equation to calculate simple interest; They are: the amount of money (deposited) times; interest rate times; Time period
150,000 times; 6% times; 3 = 27,000 dinars; That is, the value of the amount upon repayment with the addition of the value of interest reaches 177,000 thousand dinars.
Interest on (compound) loans
Bank interest on loans is calculated based on the compound interest; It is the value of the interest that is calculated on the original (initial) amount, and accumulates over time; Therefore, compound interest is called the idea of interest on interest; Because the annual interest values are cumulatively assembled; Any recurring during the special time period in paying the amount of money, in addition to the value of the interest incurred on it, and the compound interest is calculated by using a set of mathematical equations, and the following basic law for its calculation:
Mathematical law for calculating compound interest: principal times; [(1+F)^n-1].
Interpretation of the Mathematical Law: Based on multiplying the value of the principal amount (by one constant plus the interest rate), raised by the number of years, and subtracted from the value of the constant one.
Interpretation of Mathematical Law Symbols:
Principal Amount: The initial or initial amount of money.
Constant 1: It is a constant number in the mathematical equation.
q: is the rate or interest charged on the principal amount.
N: The number of years allotted to repay the amount (the value of the loan).
Example of compound interest (interest on loans): The amount of the loan granted was 200,000 dinars on a compound interest rate of 0.8% for a period of three years. What will the value of the loan be in the third year?
Solution: The previous mathematical law is applied by substituting its values on the example given:
original amount times; [(1+P)^n-1].200,000 times; [(0.8+1)^1-3] = 200,000 times; [(1,8)^1-3]=200,000 times; 4,832 = 966,400 (966,400): The amount of money after adding the compound interest for it over a period of three years.
Note: When calculating compound interest, care must be taken to ascertain the financial value obtained; Therefore, it is important to apply priorities in mathematical calculations; It must first calculate between the parentheses, then the multiplication operations, and finally the application of the subtraction operation based on the previous example.
The importance of interest
The main source of revenue for banks is the interest charged on loans, so the interest rate on the loan (compound interest) is higher than the interest on deposits (simple interest); So that the bank can maintain its profits, and develop its investments after distributing the profits of investors, and special benefits for customers, especially those who have savings accounts. The following is a set of points that clarify the general economic importance of the benefit:
It contributes to supporting the family's income by providing assistance in obtaining housing loans at a reduced rate of interest.
It affects public and private projects by financing modern investments and supporting them for growth and development.
It helps in attracting foreign capital, which contributes to providing support to the local economy of countries.
Interest is one of the important tools in the analysis and study of special monetary policy in countries, which helps reduce inflation by controlling the private rate of interest.
Interest is one of the direct influences on the balance of payments, so it is difficult to stabilize interest rates, especially on monetary exchanges in foreign currencies, which are one of the most important factors that control the nature of financial benefits.