A deposit is a form of investment because for borrowing, lending funds to the bank, he offers his clients interest accrued during the period specified in the contract. This means that money earns, brings profit, and not just is in the account. The owner of this money only needs to not spend it, not to cancel the account for some time.
The interest accrued on the deposit depends on the interest rate. It is the duration of the deposit and the interest rate decides how high the earnings will be and how profitable such an investment will be. At the same time, it should be remembered that the higher the amounts, the higher the bank offers interest rates, and therefore the higher the interest. But how do you calculate them on an annual basis?
Real interest rate
In the case of real interest, the bank presents us with annual profits. They take into account all factors that affect the interest rate on the deposit and the conditions that the interest rate may change. In the calculations, they therefore take into account the frequency of capitalization of interest and taxation thereof. The interest and profits presented on our deposit are called profits and determine only the amount that later goes to us and is already reduced by tax and other mandatory costs. So these are real profits.
Nominal interest rate
Banks advertising their deposits most often present interest rates per year. This means that the percentage from which we will calculate the profits received by the year is given.
For nominal interest, taxes are not taken into account, especially Belka tax, which includes 19% of profits. The frequency of capitalizing interest on the deposit is also not taken into account. The customer does not get accurate information about the actual profits that he will receive on the deposit.
For example – on a deposit of 10 thousand zlotys at an interest rate of 5% after a year, the customer has information about profits obtained 500 zlotys. However, he must deduct the tax and the frequency of adding interest. After deducting this cost, he is only getting the real sum of interest he earned after a year.
This should be taken into account, because the seemingly more attractive offer may turn out to be much less favorable if the interest rate is nominal and not real.