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How are Bank and CD Interest Rates calculated
by Mack Peter on May 11, 2010
We have always invested money in banks and got best CD Interest Rates from there. We have also taken loans repaid the loan along with interest to the bank. Have we ever wondered how banks calculate the interest that they charge on a loan or calculate the interest which is given to the customers.
Although it is not necessary to know the formula or all the parameters used to calculate interest by banks yet understanding two basic principles may change your way of banking as it would be much easier to judge how to gain more interest out of your savings account or CD or how to pay less interest on the loan that has been lended by a bank to you.
There are two principles that govern the Bank Rates Interest that you pay to your bank or the bank pays you
1) Time
2) Risk involved
The longer you keep the banks money with you in the form of a loan the more interest you will be paying to the bank. Thus a longer loan term means...Read More >>
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