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Interest

account, rate, deposit, paid, money and balance

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INTEREST. Interest is the money which is paid fclr a loan or the use of money. In the case of a banker interest is paid by him to customers for money deposited, and is received by him for money he has lent to customers.

In the year I5-16 the taking of interest for money was made legal in England, and the rate was fixed at 1(1 per cent. It was reduced to S per cent. in 1624, and to 6 per cent. in 1651, and in 1714 it was further reduced to 5 per cent. If the rate of interest is 3 per cent., the interest upon the money lent (the principal) is referred to as being at the rate of 0 per cent. per annum ; that is, for each £100, three pounds is payable by way of interest at the end of a complete year, and for each part of £100 or part of a year the interest is in proportion thereto.

Simple interest is calculated upon the principal only, whereas compound interest is interest which is calculated upon the principal plus interest which is due and has not been paid. A deposit receipt is an example where simple interest only is al lowed. It is calculated and provided for each half-year by a banker upon the original sum deposited, but it is not added to the principal until the depositor brings in his deposit receipt and renews it for the amount with the interest added. A deposit account, and current account where interest is added, are examples where compound interest is allowed, as each half-year when the interest is calculated it is added at once to the balance or principal and becomes part of the amount on which interest is subsequently allowed.

In a current account, interest is calculated from the actual date when a customer's cheque is paid (not from the date of the cheque), and from the actual date when money is paid to credit, which, in the case of a sub-branch, may in some cases be the day before it is actually posted in the current account ledger at the parent branch. Where a cheque is paid at another bank or branch under advice, the banker is entitled to charge interest from the date when so paid. The

calculations are in most banks now effected by means of products, commonly, though erroneously, called " decimals," by which the balance of an account, on the occasion of each change, is multiplied by the number of days it has remained undisturbed, the product, say, 2,650, being simply £2,650 for one day, or put in another form £1 for 2,650 days. The total of all the on an account by the end of a half-year is therefore that number of pounds for one day at the rate of interest to be allowed or charged. With the aid of a product table the amount of interest is very quickly ascer tained. (See DECIMALS.) As to discount on a bill, sec DISCOUNT.

In the case of a deposit receipt where interest varies according to the Bank Rate, the interest is calculated by means of a table of decimals, each rate being taken as a decimal part of 5 per cent. (See INTEREST ON DEPOSIT RECEIPT.) London bankers do not, as a rule, allow interest upon a current account but country bankers usually do so, the rate being regu lated according to the custom of the district and the nature of the account. Country bankers usually reckon the interest upon the daily balance of an account.

In some cases, if the balance falls below a specified figure no interest is given, though if that figure is maintained, interest is allowed. It is sometimes agreed to allow interest upon the minimum monthly balance. The rate of interest upon a current account is naturally dependent upon the character of the account, and upon the amount receiv able from commission. In some London banks the charge for commission is dependent upon the balance which is kept.

The interest upon a deposit receipt or deposit account is allowed at a higher rate than on a current account, the balance of which is liable to be withdrawn at any moment. Some bankers allow a uniform rate throughout the year, irrespective of whether the Bank of England Rate is high or low, whilst other bankers regulate the rate upon a scale which fluctuates according to the Bank Rate.

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