![]() Those of you who have some experience with Excel formulas have probably figured out that what the above formula actually does is multiplying the initial deposit of $10 by 1.07 three times: To calculate how much money you will find in your bank account at the end of 3 years, simply copy the same formula to column E and you will get $12.25. So, how much will your $10 deposit be worth in two years' time at an annual interest rate of 7%? The answer is $11.45 and you can get it by copying the same formula to column D. Keeping this in mind, you can verify the result returned by the formula by performing a simple calculation of 10*(1+0.07) or 10*1.07 and make sure that your balance after 1 year will be $10.70 indeed.Īnd now, let's calculate the balance after 2 years. 0.01, so 7% is 0.07, and this is how percentages are actually stored in Excel. Please pay attention that we fix the reference to column B by using the $ sign.Īs you remember, 1% is one part of a hundred, i.e. Where A2 is your initial deposit and B2 is the annual interest rate. Annual compound interest - formula 1Īn easy and straightforward way to calculate the amount earned with an annual compound interest is using the formula to increase a number by percentage: As you remember, you are investing $10 at the annual interest rate of 7% and want to know how yearly compounding increases your savings. To understand the idea of compound interest better, let's begin with a very simple example discussed at the beginning of this tutorial and write a formula to calculate annual compound interest in Excel. Calculating annual compound interest in Excel Eventually, we are going to make a universal formula that calculates the future value with different compounding periods - daily, weekly, monthly, quarterly, or yearly. The Excel compound interest formulas explained further will help you get the savings strategy to work. Long time investments can be an effective strategy to increase your wealth, and even small deposits can make a big difference over time. ![]() How to calculate compound interest in Excel There are several ways to calculate compound interest in Excel, and we are going to discuss each one in detail. As you see, at the end of the second year, not only did you earn $0.70 on the initial $10 deposit, you also earned $0.05 on the $0.70 interest that accumulated in the first year. So, how much will your $10 deposit be worth after 2 years at the annual interest rate of 7% compounded yearly? The answer is $11.45 (10.7 + 10.7*0.07 = 11.45) and your earned interest is $1.45. In our example, in addition to the principal amount of $10, the earned interest of $0.70 will also earn interest next year. In other words, you earn interest not only on the principal amount, but also on the interest earned in each compounding period. This increased amount becomes the principal for the next time period (compounding period) and also earns interest. The bank won't give the earned interest back to you, instead they add it to your principal investment. In case of compound interest, the principal in each time period is different. How much will your deposit be worth after one year at an annual interest rate of 7%? The answer is $10.70 (10 + 10*0.07 = 10.70), and your earned interest is $0.70. For example, you put $10 into a bank account. Perhaps, it might be easier to start with simple interest that is calculated only on the principal amount. More precisely, compound interest is earned on both the initial deposit (principal) and the interest accumulated from previous periods. In very simple terms, compound interest is the interest earned on interest. Compound interest formula for Excel (daily, monthly, weekly compounding). ![]() How to calculate compound interest in Excel.The aim of this article is to make it easy : ) You will also learn how to use a compound interest formula in Excel and create a universal compound interest calculator for your own worksheets. Unless you are an accounting graduate, financial analyst or an experienced investor, it might be a bit difficult to grasp the concept from specialized financial books and manuals. You will also find the detailed steps to create your own E xcel compound interest calculator.Ĭompound interest is one of the basic building blocks in banking and one of the most powerful financial forces around that determine the outcome of your investments. The tutorial explains the compound interest formula for Excel and provides examples of how to calculate the future value of the investment at annual, monthly or daily compounding interest rate. ![]()
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