How to Calculate Compound Interest In Excel?

How To Calculate Compound interest In Excel

Excel is a spreadsheet developed by Microsoft. It features calculation, graphing tools, pivot tables, and a macro programming language called Visual Basic for Applications (VBA). Excel supports charts, graphs, and data visualization generate from specific groups of cells. MS Excel also supports pivot charts that allow for charts to be linked directly to a pivot table. we can make not only basic calculations like addition and subtraction but also make Excel pivot tables, Data presentation, analysis, and a lot more.

Today we will discuss the compound interest formula in excel and show you examples of how to calculate the future value of the investment at annual, monthly, or daily compounding interest rates. We are going to show you a detailed step-by-step excel compound interest calculator.

What Is Compound Interest?

Compound interest is the interest on a loan, deposit, Fixed deposit calculated based on both the initial principal and the accumulated interest from previous periods. Compound interest is one of the most powerful financial forces in banking that determine the outcome of your investments. Compound interest is standard in finance and economics.

It might be easier to start with simple interest is calculated only on the principal and not on principal plus interest earned or incurred in the previous period. Some Compound Interest Formula Example are: If you invest RS: 100000/- with an annual interest rate of 10% for 3 years, the returns for the first year will be 100000*10/100. You earned interest 10000/-. It is difficult to calculate these manually. That’s why we all need a compound interest calculator.

Compound Interest Calculator Excel:

Compound interest is used for both fixed deposits and loans, but this calculator is based on its use in calculating the future value of savings. You can calculate the future value of an investment and rate of investment, by using this formula:

Formula Of Compound Interest-

=P*(1+R)^T

Formula Of Compound Interest
Formula Of Compound Interest

where:

  • P is the original amount invest
  • R is the nominal annual interest rate
  • T is the overall length of time the interest

How To Calculate Excel Formula For Compound Interest:

Likewise with all Excel formulas, instead of typing the numbers directly into your compound interest formula, you can utilize references to cells containing numbers.

For Example, Compound Interest Excel:

  • Enter the invest of amount, interest rate, number of years and Click the cell where you want to insert the future amount
  • Then Type in cell B4 of the spreadsheet: =select the cell of amount*(1+select the interest rate)^select the cell of number of years
Compound Interest Excel
Compound Interest Excel

Calculate Excel Compound Interest Formula Over Multiple Years:

  1. As with the same Excel formulas you can use the value of an investment as it grows over a number of years. The following example shows you when you are investing 100000 with an 8% interest rate, compounded annually, and how you would calculate the value of the investment after 1 year.
Excel Compound Interest Formula
Excel Compound Interest Formula

2. Also, let’s calculate the balance after 2 years. So, what amount will your 100000 deposit be worth in two years’ time at a yearly interest rate of 8%? The result is 116640.

Calculate Excel Compound Interest Formula
Calculate Excel Compound Interest Formula

3. And now, let’s calculate how much money you will find in your bank account after 3 years, Simply write the same formula. The result is 125971.

Calculate Excel Compound Interest
The excel compound interest formula

How To Calculate Compound Interest in Excel When Interest is Paid Monthly:

And now, let’s calculate when you invest 10000 at an 8% interest rate compounded monthly and you want to know the value of your investment after 3 years. The monthly compound interest is Rs: 2702.38.

Monthly compound interest formula-

=P*(1+(R/12))^(12*T)-P

where:

  • P is the original amount invest
  • R is the nominal annual interest rate
  • T is the overall length of time the interest
Monthly compound interest formula
Monthly compound interest formula

Compound Interest formula Using FV Function

The Excel FV function formula is categorized under financial functions. This function helps to returns the future value of an investment.

Compound Interest formula Using FV Function Formula:

=FV(R/N, T*N,0-P,0)

where:

  • P is the original amount loan
  • R is the annual interest rate
  • T is the overall length of time the interest
  • N is the total number of payment periods
Compound Interest formula excel Using FV Function
Compound Interest formula Using FV Function
Conclusion Excel Compound Interst:

This calculator is provided to enable you to plan your retirement and aid an estimate for the retirement benefit. It is designed only for banking/education purposes. A compound interest calculator helps to calculate the interest of interest. There are three advantages of the Compound interest calculator – Ease of use, Data Security, and Accuracy. Compound interest can give very high returns after longer periods.

Hope you liked reading this article on “How To Calculate Compound Interest In Excel?“. If you have any questions, leave them in the comment section below. We will be happy to respond.

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