RYAN INTERNATIONAL SCHOOL,

NERUL - 400706

ARYAN SINGH
Maths PROJECT FILE
 ACKNOWLEDGEMENT

First and foremost I would Like to thank

my school for giving me platform where
even before the completion of syllabus,
interaction and exposure is made possible
through the project work.

I also express my gratitude and sincere

thanks to all those people who supported
me directly or indirectly in gathering
information related to the project.

ARYAN SINGH
CLASS : X-D
 PREFACE

I would like to express my special thanks

of gratitude to my teacher (Mrs.BHARATI
JADHAV) as well as our principal (Mrs.
JANET ARANHA) who gave me the golden
opportunity to do this wonderful project
on the topic (BANKING), which also helped
me in doing a lot of Research and I came
to know about so many new things I am
really thankful to them.
 INDEX

Topic Page
No
ACKNOWLEDGEMENT 2

PREFACE 3

INTRODUCTION 5

TYPES OF DEPOSITS 7

TYPES OF INTEREST 21
RATES
BIBLIOGRAPHY 39
 INTRODUCTION
Deposit refers to a transaction that involves a transfer of
something to another party for safekeeping. In the world
of finance, a deposit may refer to a sum of money kept
or placed in a bank account, typically to gain interest. It
also may refer to a portion of funds that is used as a
collateral or security for the delivery of a good.
An interest rate is the amount of interest due per period, as
a proportion of the amount lent, deposited, or borrowed
(called the principal sum). The total interest on an amount
lent or borrowed depends on the principal sum, the interest
rate, the compounding frequency, and the length of time
over which it is lent, deposited, or borrowed.
The interest rate is defined as the proportion of an amount
loaned which a lender charges as interest to the borrower,
normally expressed as an annual percentage. It is the rate a
bank or other lender charges to borrow its money, or the
rate a bank pays its savers for keeping money in an account.
The annual interest rate is the rate over a period of one year.
Other interest rates apply over different periods, such as a
month or a day, but they are usually annualized.
The interest rate has been characterized as "an index of the
preference . . . for a dollar of present [income] over a dollar
of future income." The borrower wants, or needs, to have
money sooner rather than later, and is willing to pay a fee—
the interest rate—for that privilege.
TYPES OF DEPOSITS

1.DEMAND DEPOSITS
• SAVING ACCOUNT
• CURRENT ACCOUNT
2.TERM DEPOSITS
• FIXED DEPOSIT
• RECCURING DEPOSIT
 DEMAND DEPOSITS
A demand deposit is money deposited into a bank account
with funds that can be withdrawn on-demand at any time.
The depositor will typically use demand deposit funds to pay
for everyday expenses. For funds in the account, the bank or
financial institution may pay either a low or zero interest rate
on the deposit.

The maximum a person may withdraw can be up to a certain

daily limit or up to the limit of their account balance.
Common examples of demand deposits would be amounts in
a checking account or savings account. Note that demand
deposits are different from term deposits. Term deposits
require depositors to wait a predetermined period before
making a withdrawal.

Summary

• Demand deposits are accounts that allow people to

withdraw money as and when required.
• They are important in consumer spending, as the funds
typically hold the money used in day-to-day
transactions.
• Common examples of demand deposits would be
amounts in a checking or savings account.
TYPES OF DEMAND DEPOSITS
SAVING ACCOUNT:
A savings account is an interest-bearing deposit account held
at a bank or other financial institution. Though these
accounts typically pay a modest interest rate, their safety and
reliability make them a great option for parking cash you
want available for short-term needs.
Savings accounts have some limitations on how often you
can withdraw funds, but generally offer exceptional flexibility
that’s ideal for building an emergency fund, saving for a
short-term goal like buying a car or going on vacation, or
simply sweeping surplus cash you don’t need in your
checking account so it can earn more interest elsewhere.

Some savings accounts will require a minimum balance in

order to avoid monthly fees or earn the highest published
rate, while others will have no minimum balance
requirement. So it’s important to know the rules of your
particular account to ensure you avoid diluting your earnings
with fees.

Whenever you want to move money in or out of your savings

account, you can do so at a branch or an ATM, by electronic
transfer to or from another account using the bank’s app or
website, or by direct deposit. Transfers can usually be
arranged by phone, as well.
Note, however, that while there are no dollar limits on how
much you can withdraw from your account (in fact, you can
empty it or close it at any time), federal law had capped the
frequency of withdrawals from all U.S. savings accounts to six
per monthly statement cycle until April 2020. Exceed the
limit and the bank could charge you a fee, close your
account, or convert it to a checking account. In 2020 the
Federal Reserve suspended this limit. It is not clear if this
change is permanent.2

Just as with the interest earned on a money

market, certificate of deposit, or checking account, the
interest earned on savings accounts is taxable income. The
financial institution where you hold your account will send a
1099-INT form at tax time whenever you earn more than $10
in interest income. The tax you’ll pay will depend on your
marginal tax rate.

Savings Account Advantages

Savings accounts offer you a place to put your money that is
separate from your everyday banking needs, allowing you to
stash money for a rainy day or earmark funds to achieve a big
savings goal. What’s more, the bank’s security measures,
along with federal protection against bank failures provided
by the Federal Deposit Insurance Corporation (FDIC), will
keep your money safer than it would be under your mattress
or in your sock drawer.4

Beyond keeping your funds safe, savings accounts also earn

interest, so it pays to keep any unneeded funds in a savings
account instead of accumulating cash in your checking
account, where it will likely earn little or nothing. At the same
time, your access to funds in a savings account will remain
extremely liquid, unlike certificates of deposit, which impose
a hefty penalty if you withdraw your funds too soon.

Holding a savings account at the same institution as your

primary checking account can offer several convenience and
efficiency benefits. Since transfers between accounts at the
same institution are usually instantaneous, deposits or
withdrawals to your savings account from your checking
account will take effect right away. This makes it easy to
transfer excess cash from your checking account and have it
immediately earn interest—or transfer money the other way
if you need to cover a large checking transaction.

Many institutions allow you to open more than one savings

account, which can be handy if you want to keep track of
your savings progress on multiple goals. For instance, you
could have one savings account to save for a big trip while a
separate one holds surplus cash from your checking account.
CURRENT ACCOUNT:
The current account records a nation's transactions with the
rest of the world—specifically its net trade in goods and
services, its net earnings on cross-border investments, and
its net transfer payments—over a defined period of time,
such as a year or a quarter. According to Trading Economics,
the quarter two 2019 current account of the United States
was $-128.2 billion.
• The current account represents a country's imports and
exports of goods and services, payments made to
foreign investors, and transfers such as foreign aid.
• The current account may be positive (a surplus) or

negative (a deficit); positive means the country is a net

exporter and negative means it is a net importer of
goods and services.
• A country's current account balance, whether positive or

negative, will be equal but opposite to its capital

account balance.
• The United States has a significant deficit in its current

account.
Understanding Current Account
The current account is one half of the balance of payments,
the other half being the capital account. While the capital
account measures cross-border investments in financial
instruments and changes in central bank reserves, the
current account measures imports and exports of goods and
services, payments to foreign holders of a country's
investments, payments received from investments abroad,
and transfers such as foreign aid and remittances. Some
countries will split the capital account into two top-level
divisions (i.e., the financial account and the capital account).
In this context, the financial account measures increases or
decreases in international ownership of assets, while the
capital account measures financial transactions that do not
affect income, production, or savings.

A country's current account balance may be positive (a

surplus) or negative (a deficit); in either case the country's
capital account balance will register an equal and opposite
amount. Exports are recorded as credits in the balance of
payments, while imports are recorded as debits. In keeping
with double-entry bookkeeping, any credit in the current
account (such as an export) will have a corresponding debit
recorded in the capital account. Essentially, the country
"imports" the money that a foreign buyer pays for the
export. The item received by the nation is recorded as a debit
while the item given up in the transaction is recorded as a
credit.

A positive current account balance indicates that the nation

is a net lender to the rest of the world, while a negative
current account balance indicates that it is a net borrower. A
current account surplus increases a nation's net foreign
assets by the amount of the surplus, while a current account
deficit decreases it by the amount of the deficit.
TERM DEPOSITS :
A term deposit is a fixed-term investment that includes
the deposit of money into an account at a financial
institution. Term deposit investments usually carry short-
term maturities ranging from one month to a few years and
will have varying levels of required minimum deposits.

The investor must understand when buying a term deposit

that they can withdraw their funds only after the term ends.
In some cases, the account holder may allow the investor
early termination—or withdrawal—if they give several days
notification. Also, there will be a penalty assessed for early
termination.Examples of term deposits include certificates of
deposit (CDs) and time deposits.

• A term deposit is a type of deposit account held at a

financial institution where money is locked up for some
set period of time.
• Term deposits are usually short-term deposits with

maturities ranging from one month to a few years.

• Typically, term deposits offer higher interest rates than

traditional liquid savings accounts, whereby customers

can withdraw their money at any time.
When an account holder deposits funds at a bank, the bank
can use that money to lend to other consumers or
businesses. In return for the right to use these funds for
lending, they will pay the depositor compensation in the
form of interest on the account balance. With most deposit
accounts of this nature, the owner may withdraw their
money at any time. This makes it difficult for the bank to
know ahead of time how much they may lend at any given
time.

To overcome this problem, banks offer term deposit

accounts. A customer will deposit or invest in one of these
accounts, agreeing not to withdraw their funds for a fixed
period in return for a higher rate of interest paid on the
account.

The interest earned on a term deposit account is slightly

higher than that paid on standard savings or interest-bearing
checking accounts. The increased rate is because access to
the money is limited for the timeframe of the term deposit.

Term deposits are an extremely safe investment and are

therefore very appealing to conservative, low-risk investors.
The financial instruments are sold by banks, thrift
institutions, and credit unions. Term deposits sold by banks
are insured by the Federal Deposit Insurance
Corporation (FDIC). The National Credit Union
Administration (NCUA) provides coverage for those sold by
credit unions.
FIXED DEPOSIT:
A fixed deposit (FD) is a financial instrument provided by
banks or NBFCs which provides investors a higher rate
of interest than a regular savings account, until the given
maturity date. It may or may not require the creation of a
separate account. It is known as a term deposit or time
deposit in Canada, Australia, New Zealand, India and The
United States, and as a bond in the United Kingdom and for a
fixed deposit is that the money cannot be withdrawn from
the FD as compared to a recurring deposit or a demand
deposit before maturity. Some banks may offer additional
services to FD holders such as loans against FD certificates at
competitive interest rates. It's important to note that banks
may offer lesser interest rates under uncertain economic
conditions. The interest rate varies between 4 and 7.50
percent. The tenure of an FD can vary from 7, 15 or 45 days
to 1.5 years and can be as high as 10 years. These
investments are safer than Post Office Schemes as they are
covered by the Deposit Insurance and Credit Guarantee
Corporation (DICGC). However, DICGC guarantees amount up
to ₹ 500000(about $6850) per depositor per bank. They also
offer income tax and wealth tax benefits.
Explanation
Fixed deposits are a high-interest-yielding term deposit and
offered by banks in India. The most popular form of term
deposits are fixed deposits, while other forms of term
deposits are recurring deposit and Flexi Fixed deposits (the
latter is actually a combination of demand deposit and fixed
deposit).
To compensate for the low liquidity, FDs offer higher rates of
interest than saving accounts. The longest permissible term
for FDs is 10 years. Generally, the longer the term of deposit,
higher is the rate of interest but a bank may offer lower rate
of interest for a longer period if it expects interest rates, at
which the Central Bank of a nation lends to banks ("repo
rates"), will dip in the future.
Usually in India the interest on FDs is paid every three
months from the date of the deposit (e.g. if FD a/c was
opened on 15 Feb, the first interest installment would be
paid on 15 May). The interest is credited to the customers'
Savings bank account or sent to them by cheque. This is
a Simple FD. The customer may choose to have the interest
reinvested in the FD account. In this case, the deposit is
called the Cumulative FD or compound interest FD. For such
deposits, the interest is paid with the invested amount on
maturity of the deposit at the end of the term.
Although banks can refuse to repay FDs before the expiry of
the deposit, they generally don't. This is known as a
premature withdrawal. In such cases, interest is paid at the
rate applicable at the time of withdrawal. For example, a
deposit is made for 5 years at 8%, but is withdrawn after 2
years. If the rate applicable on the date of deposit for 2 years
is 5 per cent, the interest will be paid at 5 per cent. Banks can
charge a penalty for premature withdrawal.
Banks issue a separate receipt for every FD because each
deposit is treated as a distinct contract. This receipt is known
as the Fixed Deposit Receipt (FDR), that has to be
surrendered to the bank at the time of renewal or
encashment.
Many banks offer the facility of automatic renewal of FDs
where the customers do give new instructions for the
matured deposit. On the date of maturity, such deposits are
renewed for a similar term as that of the original deposit at
the rate prevailing on the date of renewal.
Income tax regulations require that FD maturity proceeds
exceeding Rs 20,000 not to be paid in cash. Repayment of
such and larger deposits has to be either by "A/c payee"
crossed cheque in the name of the customer or by credit to
the saving bank a/c or current a/c of the customer.
Nowadays, banks give the facility of Flexi or sweep in FD,
where in customers can withdraw their money through ATM,
through cheque or through funds transfer from their FD
account. In such cases, whatever interest is accrued on the
amount they have withdrawn will be credited to their savings
account (the account that has been linked to their FD) and
the balance amount will automatically be converted in their
new FD. This system helps them in getting their funds from
their FD account at the times of emergency in a timely
manner.
RECCURING DEPOSIT :
A recurring deposit is a special kind of term deposit offered
by banks which help people with regular incomes to deposit
a fixed amount every month into their recurring deposit
account and earn interest at the rate applicable to fixed
deposits.[1] It is similar to making fixed deposits of a certain
amount in monthly installments. This deposit matures on a
specific date in the future along with all the deposits made
every month. Recurring deposit schemes allow customers an
opportunity to build up their savings through regular monthly
deposits of a fixed sum over a fixed period of time. The
minimum period of a recurring deposit is six months and the
maximum is ten years.[2]
The recurring deposit can be funded by standing
instructions which are the instructions by the customer to
the bank to withdraw a certain sum of money from his/her
savings/current account and credit to the recurring deposit
account.
When the recurring deposit account is opened, the maturity
value is indicated to the customer assuming that the monthly
installments will be paid regularly on due dates. If any
installment is delayed, the interest payable in the account
will be reduced and will not be sufficient to reach the
maturity value. Therefore, the difference in interest will be
deducted from the maturity value as a penalty. The rate of
penalty will be fixed upfront. Interest is compounded on
quarterly basis in recurring deposits.
One can avail loans against the collateral of a recurring
deposit up to 80 to 90% of the deposit value.
The rate of interest offered is similar to that of fixed deposits.
TYPES OF INTEREST RATES

Interest Rates: Meaning

The Rate at which the investors receive their returns on
investment or the rate at which borrowers are to pay for
their borrowings is known as Interest Rate. In other terms, it
is a percentage of the principal amount, which the borrower
pays to the lender for using the funds of lenders. These
interest rates are mostly expressed on annual basis, but
sometimes they are also expressed on a periodic basis for a
shorter duration. There are many types of interest rates
prevalent in the financing and investment sector.
Types of Interest Rates
There are many types of Interest Rates that the borrowers
and lenders encounter in their lifetime. According to nature
and purpose, the interest rates vary from one another. They
are as follows:-

1)Compound Interest Rate :

Compound interest (or compounding interest) is the interest
on a loan or deposit calculated based on both the initial
principal and the accumulated interest from previous
periods. Thought to have originated in 17th-century Italy,
compound interest can be thought of as "interest on
interest," and will make a sum grow at a faster rate
than simple interest, which is calculated only on the principal
amount.
The rate at which compound interest accrues depends on the
frequency of compounding, such that the higher the number
of compounding periods, the greater the compound interest.
Thus, the amount of compound interest accrued on $100
compounded at 10% annually will be lower than that on $100
compounded at 5% semi-annually over the same time period.
Since the interest-on-interest effect can generate
increasingly positive returns based on the initial principal
amount, it has sometimes been referred to as the "miracle of
compound interest."

• Compound interest (or compounding interest) is interest

calculated on the initial principal, which also includes all
of the accumulated interest from previous periods on a
deposit or loan.
• Compound interest is calculated by multiplying the
initial principal amount by one plus the annual interest
rate raised to the number of compound periods minus
one.
• Interest can be compounded on any given frequency
schedule, from continuous to daily to annually.
• When calculating compound interest, the number of
compounding periods makes a significant difference.

Calculating Compound Interest

Compound interest is calculated by multiplying the initial
principal amount by one plus the annual interest rate raised
to the number of compound periods minus one. The total
initial amount of the loan is then subtracted from the
resulting value.
Katie Kerpel {Copyright} Investopedia, 2019.
The formula for calculating compound interest is:

• Compound interest = total amount of principal and

interest in future (or future value) less principal amount
at present (or present value)

= [P (1 + i)n] – P
= P [(1 + i)n – 1]
Where:
P = principal
i = nominal annual interest rate in percentage terms
n = number of compounding periods
Take a three-year loan of $10,000 at an interest rate of 5%
that compounds annually. What would be the amount of
interest? In this case, it would be:

$10,000 [(1 + 0.05) 3 – 1] = $10,000 [1.157625 – 1] =

$1,576.25
2)Fixed Interest Rate :
A fixed interest rate is an unchanging rate charged on a
liability, such as a loan or mortgage. It might apply during the
entire term of the loan or for just part of the term, but it
remains the same throughout a set period. Mortgages can
have multiple interest-rate options, including one that
combines a fixed rate for some portion of the term and an
adjustable rate for the balance. These are referred to as
“hybrids.”

• A fixed interest rate avoids the risk that a mortgage or

loan payment can significantly increase over time.
• Fixed interest rates can be higher than variable rates.
• Borrowers are more likely to opt for fixed-rate loans
during periods of low interest rates.

A fixed interest rate is attractive to borrowers who don’t

want their interest rates fluctuating over the term of their
loans, potentially increasing their interest expenses and, by
extension, their mortgage payments. This type of rate avoids
the risk that comes with a floating or variable interest rate, in
which the rate payable on a debt obligation can vary
depending on a benchmark interest rate or index, sometimes
unexpectedly.

Fixed rates are typically higher than adjustable rates. Loans

with adjustable or variable rates usually offer lower
introductory rates than fixed-rate loans, making these loans
more appealing than fixed-rate loans when interest rates are
high.
Borrowers are more likely to opt for fixed interest rates
during periods of low interest rates when locking in the rate
is particularly beneficial. The opportunity cost is still much
less than during periods of high interest rates if interest rates
go lower.

Special Considerations
The Consumer Financial Protection Bureau (CFPB) provides
a range of interest rates you can expect at any given time
depending on your location. The rates are updated biweekly,
and you can input information such as your credit score,
down payment, and loan type to get a closer idea of what
fixed interest rate you might pay at any given time and weigh
this against an ARM.
3)Simple Interest:

Simple interest is a quick and easy method of calculating the

interest charge on a loan. Simple interest is determined by
multiplying the daily interest rate by the principal by the
number of days that elapse between payments.
This type of interest usually applies to automobile loans or
short-term loans, although some mortgages use this
calculation method.

• Simple interest is calculated by multiplying the daily

interest rate by the principal, by the number of days
that elapse between payments.
• Simple interest benefits consumers who pay their loans

on time or early each month.

• Auto loans and short-term personal loans are usually

simple interest loans.

Understanding Simple Interest
When you make a payment on a simple interest loan, the
payment first goes toward that month’s interest, and the
remainder goes toward the principal. Each month’s interest is
paid in full so it never accrues. In contrast, compound
interest adds some of the monthly interest back onto the
loan; in each succeeding month, you pay new interest on old
interest.

To understand how simple interest works, consider an

automobile loan that has a $15,000 principal balance and an
annual 5% simple interest rate. If your payment is due on
May 1 and you pay it precisely on the due date, the finance
company calculates your interest on the 30 days in April.
Your interest for 30 days is $61.64 under this scenario.
However, if you make the payment on April 21, the finance
company charges you interest for only 20 days in April,
dropping your interest payment to $41.09, a $20 savings.

The Formula for Simple Interest Is

\begin{aligned} &\text{Simple Interest} = P \times I \times
N\\ &\textbf{where:} \\ &P = \text{principle} \\ &I =
\text{daily interest rate} \\ &N = \text{number of days
between payments} \\ \end{aligned}
Simple Interest=P×I×Nwhere:P=principleI=daily interest rate
N=number of days between payments

Example
Generally, simple interest paid or received over a certain
period is a fixed percentage of the principal amount that was
borrowed or lent. For example, say a student obtains a
simple-interest loan to pay one year of college tuition, which
costs $18,000, and the annual interest rate on the loan is 6%.
The student repays the loan over three years. The amount of
simple interest paid is:\begin{aligned} &\$3,240 = \$18,000
\times 0.06 \times 3 \\ \end{aligned}$3,240=$18,000×0.06×3
and the total amount paid is:\begin{aligned} &\$21,240 =
\$18,000 + \$3,240 \\ \end{aligned}$21,240=$18,000+$3,240
 4)Variable Interest Rate:
A variable interest rate (sometimes called an “adjustable” or
a “floating” rate) is an interest rate on a loan or security that
fluctuates over time because it is based on an underlying
benchmark interest rate or index that changes periodically.

The obvious advantage of a variable interest rate is that if the

underlying interest rate or index declines, the borrower’s
interest payments also fall. Conversely, if the underlying
index rises, interest payments increase. Unlike variable
interest rates, fixed interest rates do not fluctuate.1

• A variable interest rate fluctuates over time because it is

based on an underlying benchmark interest rate or
index that changes periodically with the market.
• The underlying benchmark interest rate or index for a

variable interest rate depends on the type of loan or

security, but it is frequently linked to the LIBOR or the
federal funds rate.
• Variable interest rates can be found in mortgages, credit

cards, corporate bonds, derivatives, and other securities

or loans.
Understanding Variable Interest Rates
A variable interest rate is a rate that moves up and down
with the rest of the market or along with an index. The
underlying benchmark interest rate or index for a variable
interest rate depends on the type of loan or security, but it is
often associated with either the London Inter-Bank Offered
Rate (LIBOR) or the federal funds rate.
Variable interest rates for mortgages, automobiles,
and credit cards may be based on a benchmark rate, such as
the prime rate in a country. Banks and financial institutions
charge consumers a spread over this benchmark rate, with
the spread depending on several factors, such as the type of
asset and the consumer’s credit rating. Thus, a variable rate
may bill itself as “the LIBOR plus 200 basis points” (plus 2%).2
Residential mortgages, for instance, can be obtained with
fixed interest rates, which are static and cannot change for
the duration of the mortgage agreement, or with a floating or
adjustable interest rate, which is variable and changes
periodically with the market. Variable interest rates can also
be found in credit cards, corporate bond issues, swap
contracts, and other securities.
 5)Discounted Interest rate:
the INTEREST RATE at which the streams of cash inflows
and outflows associated with an INVESTMENT project are to
be discounted. For private-
sector projects, the discount rate is frequently based upon th
e weighted-average COST OF
CAPITAL to the firm, with the interest
cost
of each form of finance (long-
term loans, overdrafts, equity etc.) being weighted by the pro
portion that each form of finance contributes to total compa
ny finances.
The discount rate for public-
sector investment projects involves more complex considerat
ions. It can be argued that, while individuals have a limited lif
espan and so will not look too many years ahead for returns
on investment, society continues indefinitely as some individ
uals die and are replaced by others being born, so society will
tend to look further ahead for returns. This disparity betwee
n private time preference and social time preference means t
hat society will tend to discount the future less heavily than t
he individual and would favour a lower discount rate. On the
other hand, opportunity-
cost considerations may make it difficult for society to apply
a lower, less stringent, discount rate to public sector projects
than is applied in the private sector. Otherwise, inferior proje
cts in the public sector could divert funds away from superior
projects in the private sector. The social opportunity-
cost discount rate may well therefore need to be similar to th
e private sector rate. Finally, the government borrowing rate
is a risk-
free interest rate since it entails little risk of default in repayi
ng the loan, while private sector rates entail a risk premium, s
o that the government borrowing rate may be too low in opp
ortunity-cost terms.
In most public investment appraisals the discount rate applie
d has tended to follow current prevailing private-
sector interest rates. See INVESTMENT
APPRAISAL, DISCOUNTED CASH FLOW, PAYBACK
PERIOD, COST-BENEFIT ANALYSIS, TIME PREFERENCE

. Example
Suppose at times when the loans/lending becomes
more than deposits in a single day; a particular bank
may approach the Federal Bank to grant loans at a
discounted rate to cover up their liquidity or lending
position for the day.
6)Annual Percentage Rate (APR):
The term “annual percentage rate (APR)” refers to the annual
rate of interest charged to borrowers and paid to investors.
APR is expressed as a percentage that represents the actual
yearly cost of funds over the term of a loan or income earned
on an investment. This includes any fees or additional costs
associated with the transaction, but it does not
take compounding into account. The APR provides
consumers with a bottom-line number they can easily
compare with rates from other lenders.1

• An annual percentage rate (APR) is the annual rate

charged for borrowing or earned through an
investment.
• Financial institutions must disclose a financial

instrument’s APR before any agreement is signed.

• Consumers may find it difficult to compare APRs,

because lenders have the power to choose what charges

are included in their rate calculation.
• An APR may not reflect the actual cost of borrowing

because of the fees that are included or excluded.

How Annual Percentage Rate (APR) Works
An annual percentage rate is expressed as an interest rate. It
calculates what percentage of the principal you’ll pay each
year by taking things such as monthly payments into account.
APR is also the annual rate of interest paid on investments
without accounting for the compounding of interest within
that year.

The Truth in Lending Act (TILA) of 1968 mandated that

lenders disclose the APR they charge to borrowers. Credit
card companies are allowed to advertise interest rates on a
monthly basis, but they must clearly report the APR to
customers before they sign an agreement.2

How Is APR Calculated?

The rate is calculated by multiplying the periodic interest
rate by the number of periods in a year in which the periodic
rate is applied. It does not indicate how many times the rate
is applied to the balance.

\begin{aligned} &\text{APR} = \left ( \left ( \frac{ \frac{

\text{Fees} + \text{Interest} }{ \text {Principal} } }{ n } \right )
\times 365 \right ) \times 100 \\ &\textbf{where:} \\
&\text{Interest} = \text{Total interest paid over life of the
loan} \\ &\text{Principal} = \text{Loan amount} \\ &n =
\text{Number of days in loan term} \\ \end{aligned}
APR=((nPrincipalFees+Interest
)×365)×100where:Interest=Total interest paid over life of the
loanPrincipal=Loan amountn=Number of days in loan term

APR in the U.S. is typically presented as the periodic interest

rate multiplied by the number of compounding periods per
year. Definitions of APR outside of the United States may be
quite different. The European Union (EU) focuses on
consumer rights and financial transparency in defining this
term. A single formula for calculating interest rate was
established for all EU member nations, although individual
countries have some leeway over determining the exact
situations in which this formula is to be adopted above and
beyond EU-stipulated cases.

Types of APRs
Credit card APRs vary based on the charge. A lender may
charge one APR for purchases, another for cash advances,
and yet another for balance transfers from another card.
Banks also charge high-rate penalty APRs to customers for
late payments or violating other terms of the cardholder
agreement. There’s also the introductory APR—a low or 0%
APR—which many credit card companies use to entice new
customers to sign up for a card.3
The APR borrowers are charged also depends on their credit.
Loans offered to those with excellent credit carry significantly
lower interest rates than the rates charged to those with bad
credit.4
Loans generally come with either fixed or variable APRs. A
fixed APR loan has an interest rate that is guaranteed not to
change during the life of the loan or credit facility. A variable
APR loan has an interest rate that may change at any time.
7)Prime Rate:

• The prime rate is the interest rate that commercial

banks charge their most creditworthy corporate
customers.
• The rates for mortgages, small business loans, and
personal loans are based on prime.
• The most important and most used prime rate is the one
that the Wall Street Journal publishes daily.

The prime rate is the interest rate that commercial banks

charge their most creditworthy corporate customers. The
federal funds overnight rate serves as the basis for the prime
rate, and prime serves as the starting point for most other
interest rates

Understanding the Prime Rate

The prime rate (prime) is the interest rate that commercial
banks charge their most creditworthy customers, generally
large corporations. The prime interest rate, or prime lending
rate, is largely determined by the federal funds rate, which is
the overnight rate that banks use to lend to one another.
Prime forms the basis of or starting point for most other
interest rates—including rates for mortgages, small business
loans, or personal loans—even though prime might not be
specifically cited as a component of the rate ultimately
charged.

Interest rates provide a way to cover costs associated with

lending and they act as compensation for the risk assumed by
the lender based on the borrower’s credit history and other
financial details.

Prime—plus a percentage—forms the underlying base of

almost all other interest rates.

Determining the Prime Rate

Default risk is the main determiner of the interest rate that a
bank charges a borrower. Because a bank's best customers
have little chance of defaulting, the bank can charge them a
rate that is lower than the rate they charge a customer who
has a greater likelihood of defaulting on a loan.

Each bank sets its own interest rate, so there is no single

prime rate. Any quoted prime rate is usually an average of
the largest banks' prime rates. The most important and most
used prime rate is the one that the Wall Street
Journal publishes daily. Although other U.S. financial services
institutions regularly note any changes that the Federal
Reserve (the Fed) makes to its prime rate, and may use them
to justify changes to their own prime rates, institutions are
not required to raise their prime rates in accordance with the
Fed's.
Other Types of Interest Rates
There are also other types of interest rates that are
important to consider here. They are as follows:-
 BIBLIOGRAPHY
I have collected all the informations from the
following sources (Like Books, Newspaper,
Magazines, Internet, etc) to complete this project.

❖ BOOK
Concise Mathematics,I.C.S.E.
Part II-Class X
By R. K. Bansal, M.Sc B.Ed. Former Head
Mathematics Department Sophia Girls
School, Meerut
SELINA PUBLISHERS PVT. LTD.
❖ INTERNET
Types of Interest Rate
https://www.investopedia.com/
https://www.wallstreetmojo.com/
Types of Deposit
https://randomgyan.com/