Calculating Compound Interest in Excel: A Guide

In reality, investment returns will vary year to year and even day to day. In the short term, riskier investments such as stocks or stock mutual funds may lose value. But over a long time horizon, history shows that a diversified growth portfolio can return an average of 6% annually.

Calculate compound interest

How much will your investment be worth after 15 years at an annual interest rate of 4% compounded quarterly? The annual interest rate (r) is divided by four because the interest payout is compounded on a monthly basis. The no. of compound periods (n) is multiplied by 4 to calculate the number of months in the number of years over which the investment is made. If you left your money in that account for another year, you’ll earn $538.96 in interest in year two, for a total of $1,051.63 in interest over two years. You earn more in the second year because interest is calculated on the initial deposit plus the interest you earned in the first year.

All this is good, but what you really want is an Excel formula for compound interest, right? Now we are getting to the most interesting part – building your own powerful and versatile compound interest calculator in Excel. So we can also directly calculate the value of the investment after 5 years.

Before we look into what the arguments refer to in the FV formula, let’s create the FV formula by using the previous example of calculating monthly compounded interest. In Excel, set up the formula like below by including cell B6, the compounding period – 12 by using relative cell reference. In some scenarios, the interest of the investment plan is paid monthly or quarterly.

1. Compound interest is interest that’s calculated both on the initial principal of a deposit or loan, and on all previously accumulated interest.
2. If you prefer investing money rather than time in figuring out how to calculate compound interest in Excel, online compound interest calculators may come in handy.
3. By employing either the Compound Interest Formula or the FV Formula in Excel, investors can project the future value of their investments more accurately.
4. By calculating potential returns, you can make informed decisions about where to place your money.

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1. In below example, you can see the rapid decrease in time it takes to double as the interest rate (rate of return) goes up.
2. You can find plenty of them by entering something like “compound interest calculator” in your preferred search engine.
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6. Each frequency will affect how much interest you’ll earn over time.
7. How much will your investment be worth after 15 years at an annual interest rate of 4% compounded quarterly?

Imagine you have a savings account that compounds interest daily. Each day, the bank calculates interest on your account balance, and this interest is added to your balance, making it grow slightly more the next day. This process repeats, and over time, your savings can grow significantly faster than with simple interest. Over time, compound interest can mean that your investments grow significantly. Compound interest can be calculated based on any period – daily, monthly, quarterly or annually for example.

Compound interest calculator in Excel

If you prefer investing money rather than time in figuring out how to calculate compound interest in Excel, online compound interest calculators may come in handy. You can find plenty of them by entering something like “compound interest calculator” in your preferred search engine. In the meantime, let me quickly present a couple of my favorite ones. How much will your investment be worth after 5 years at an annual interest rate compound interest formula in excel of 8%? Then, to calculate the future value, enter the formula by referencing the values in cells B3, B4, and B5. With compound interest, the investment grows further as the interest accumulates, and the initial deposit grows bigger by also considering the interest earned previously.

This will allow you to see how different frequencies impact your total amount. Feel free to experiment with different values to see the effects on compound interest. One of the cool things about compound interest is that you can adjust it based on different compounding frequencies—annually, semi-annually, quarterly, monthly, or even daily. Each frequency will affect how much interest you’ll earn over time.

I made an Excel file with over 20 examples (and more than 100 formulas). Click here to download the file and learn the concepts better. We can use the PV (Present Value) function in Excel to calculate the principal value, given a compounded value. To calculate compounded value for various years, we can use below formulas. Imagine investing $5,000 at 5%, compounded annually  for 20 years.

You’ll need to input a period rate, which can be calculated by dividing the annual rate by the number of periods – or rate/n. We do not offer investment advice, and will not be liable for any monetary losses arising in connection with this compound interest calculator. Seek professional advice if you want to learn more about investment opportunities. Ultimately, the fact is that the compound interest formulas calculate the same result for Example 5, regardless. Another real-world example is the Canadian mortgage where the compounding is semi-annual (2 times per year) and the payments are monthly (12 per year). These values for rate and nper can then be used in the compound interest formulas mentioned above.

Whether you’re crafting dashboards or generating reports, Bricks has got you covered, allowing you to focus on what truly matters. By applying these skills, you can make more informed financial decisions and potentially boost your savings over time. Excel also offers built-in functions that can simplify these calculations.

You want to know the future value of your investment using the compound interest calculator in Excel. Use this handy calculator to see how your money might grow. You can calculate the compound interest if your money is in a savings account with a fixed interest, or if you were to choose to invest monthly to make the most of your money.