How to calculate daily compound interest rate in excel

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How to calculate daily compound interest rate in excel

Compound interest is the interest that's calculated both on the initial principal of a deposit or loan and on all previously accumulated interest. In this article, we are going to learn the compound interest formula in Excel. Professor Albert Einstein once said, "Compounding interest is the most powerful force in the universe". It is doubtful that Einstein really said that or not, but it doesn't take away from the importance of the message. Compounding is a very powerful force that either work against you (borrowing) or for you (investing). Let's get started with the basics of Compound Interest. Knowing the Compound Interest Formula For calculating the future value of any investment earning at a constant rate of interest the following formula can be used. Which is, Future Value = P*(1+r)^n Where, P-initial amount invested r -annual interest rate (as a decimal or a percentage) n-number of periods over which the investment is made For example, if in 5 years you invest $100 at a rate of 5%. Then the calculated future value is, 100*(1+5%)^5 = 127.6282 Compound Interest Formula in Excel Here we are going to calculate the future value of some venture using the formula of compound interest in excel. Let`s say we have a table that states $100 investment for 5 years at an annual interest rate of 5%. For this, we need to calculate the future value using the formula of compound interest. We can use the formula directly to calculate the future value in excel. The below picture shows how it is done. As we can see the Future value is $127.63 which is the accurate value for this. Calculating Compound Interest Over Multiple Years The future value of some amount of investment for a number of years can be shown using the same formula. Here the investment goes as the years added. The following picture shows the future value of an original investment of $100 for different years, invested at an annual interest rate of 5%. Compound Interest Formula with Monthly Contributions in Excel If the interest is paid monthly then the formula for future value becomes, Future Value = P* (1+r/12)^(n*12). The following picture shows the formula of compound interest to calculate the future value of any investment with monthly contributions. Calculating Compound Interest while Interest is Paid Quarterly Just like the previous example If the interest on investment is paid quarterly then the formula for future value becomes, Future Value = P*(1+r/4)^(n*4). The following picture shows, how the compound interest is calculated when the interest is paid quarterly. Compound Interest Formula with daily Contributions in Excel Just like the previous examples, we can calculate the future value of the initial investment for daily contributions. Here the formula will be, Future Value = P* (1+r/365)^(n*365). The following picture shows how it is calculated. As you can see, while calculating the future value for the daily compounding interest with the same investment, the result is a bit higher than with monthly compounding or yearly compounding. This is because the 5% interest rate adds interest to the initial investment each day. For monthly or yearly compounding it adds for each month and year respectively. Excel FV Function for Calculating Compound Interest It's a good practice to use Excel's FV function which calculates the future value based on different factors. The syntax for this FV function is, FV(rate, nper, pmt, [pv], [type]) Where, rate-the interest rate nper-number of periods for the investment pmt-the periodic payment pv-the present value/initial investment type is optional. the screenshot below shows the future value of $5,000 investment after 12 years at an annual interest rate of 6%. Note: Here 0 is used as there is no periodic payment. We need to multiply the present value (pv) with -1 as excel treats this as "money out" for your investment. For calculating the future value to be compounded with monthly, quarterly, weekly, or daily contribution you need to divide the annual interest rate (for FV function it is rate) with the contribution and multiply the contribution with the number of years (for FV function it is nper). Let`s say we want to calculate the future value of the same factors. The only difference will be with the compounded period. Here, the compounded periods will be the total number of weeks per year which is 52. The picture below shows how it is done. Let's calculate the compound interest with more options where additional contributions (pmet & type) are added. We will calculate for the same example where an additional contribution of $500 is added. The following picture shows us the whole calculation and result. Here, B1 ? original investment B2 ? annual interest rate B3 ? compounding periods per year B4 ? the number of years B6 ? periodic payments B7 ? periodic payments type. Put 1 if the additional amount is deposited at the beginning, put 0 if the additional amount is deposited at the end. Note: We multiplied the periodic payment by -1. It is because like the present value (pv), excel also treats this as "money out" for your investment. Online Compound Interest Calculator If you want to get the help of different online sites for calculating the compound interest rather than finding it out through excel, you can try it by using the help of below websites which can help you find the compound interest the way you want. Compound Interest Calculator by The Calculator Site This site may help you find different solutions for statistical analysis. It provides an online calculator for finding the compound interest on savings. It also provides you the option of compounding interval. You can include the option of regular monthly withdrawals or deposits. There is another calculator attach to it which neglects the regular deposits/withdrawals. So, you have the freedom to choose the option you want. Click on the link below to get the help of The Calculator Site. The Calculator Site After your calculation is done it will not only show you the result but it will also show you the graph of your result. So, you can have a clear idea about what is actually happening with the interest and balance. Compound Interest Calculator by Money-Zine The online calculator from Money-Zine is probably the simplest online calculator for calculating compound interest. It will ask for only three inputs which are, Investment or Savings Amount ($), Investment Duration (Years) and Interest Rate Before Compounding (%). The calculator calculates different interest rates of annual, semi-annual, quarterly, monthly, weekly, and daily along with the future value of the investment which was provided. Click the following link to get the help of Money-Zine. Money-Zine Compound Interest Calculator by Calculate Stuff This online site calculates the compound interest briefly by taking the regular investment into consideration. You can also choose the regular investment monthly, quarterly, and annually. The compounding option can also be chosen with a unique feature of starting date. By pressing the calculate option after inserting the values, you will see a pie-chart that indicates your initial and regular investment along with the interest for the whole years of investment. You will also see the investment growth chart for different years. For your own benefits, this site will also show you the yearly and monthly breakdown of your investments. To get the help of this website, click on the link below. Calculate Stuff Conclusion In this article, we mainly discuss the general formula for compound interest and how the future value of some investment and interest is calculated using the formula of compound interest. We also discuss the FV function that can be used as a compound interest calculator in excel. So, basically, you can apply the direct formula of compound interest or you can use the FV function for calculating the future value of some amount of investment based on different factors. The Excel file in which the whole calculations are done is attached below so that you can have a brief idea about the topic. Compound Interest Formula I hope you will like this article. Stay tuned for more articles and leave a comment below. Read More... Compound interest generates your money to develop quickly. It makes a sum of money increase at a more rapid rate than simple interest because you will earn returns on the money you invest, as well as on returns at the end of every compounding time. This means that you don't have to put away as much money to reach your goals! That's why it is much important than you think. In this tutorial, you will learn to create a daily compound interest calculator in Excel. This tutorial will be on point with a suitable example and proper illustrations. So, stay tuned to enrich your Excel knowledge. Download the Template Download the following Excel workbook. You can use the first worksheet as the template for your Daily Compound Interest Calculator. Daily Compound Interest Calculator.xlsx What is Compound Interest in Excel? Compound interest means earning or paying interest on interest. Basically, it is one of those popular financial terms. When we think about compound interest, we consider it as gaining money. It increases our savings after a limited period. In Simple Interest, interest is only estimated from the principal. And also interest is not added to the principal. But, with compound interest, after a separately compound term, the interest accumulated over that span is added to the principal so that the following estimation of interest incorporates the actual principal plus the previously acquired interest. Suppose, you deposited $1000 to a bank for 2 years. And the bank provides a compound interest of 3% every year. After one year, your balance will be $1030. Because 3% of $1000 is $30. That's pretty simple. But, in the second year, the interest won't be counted on the initial principal of $1000. Rather than, it will be counted on your current balance of $1030. That will give you a compounded balance of $1060.9. Daily Compound Interest Formula in Excel Before we discuss the daily compound interest calculator in Excel, we should know the basic compound interest formula. The basic compound interest formula is shown below: Current Balance = Present Amount * (1 + interest rate)^n Here, n = Number of periods So. suppose, you have an investment of $1000 for 5 years with an interest rate of 5% compounded monthly. Monthly Compound interest will be: As our article is all about the daily compound interest calculator, we can also compute the daily compound interest using that formula. Daily Compound interest will be: I hope this section gave you a proper idea about the daily compound interest. Read More: Compound Interest Formula in Excel: Calculator with All Criteria Step by Step Guide to Create a Daily Compound Interest Calculator in Excel In this section, we will provide you with a step-by-step guide to creating a daily compound interest calculator in Excel. It will be short but a compelling example. I hope you will follow this step-by-step method to get your ideas clear and implement this into your worksheet. Take a look at the following dataset: Here, our dataset contains some information to calculate the daily compound interest. And we are also going to find the earned or gained interest from this. Here, we are using this formula: Compounded Amount=Initial Balance* (1 + Annual interest rate / Compounding periods per year) ^ (Years * Compounding periods per year) You may think we why we are using a different formula? We are not. If you take a closer look, this is the same formula. In the previous section, we were diving this same formula into separate parts. Now, follow the simple steps to find the daily compound interest in Excel. Steps First, type the following formula in Cell C9: Then, press Enter. After that, it will show you the Estimated balance. Now, to calculate the Gained Interest, simply type the following in Cell C10: As you can see, we are successful in creating a daily compound interest calculator in Excel. Now, you can use this workbook as your calculator. So, download the practice workbook and try with your own values. Similar Readings: Test the Calculator for Daily, Monthly, and Yearly Compounding Periods: An Example Now, in this section, we will show an example of compound interest. This example will contain the same dataset. But we will calculate differently compound interests. Suppose, you want to invest $10000 for ten years somewhere. You have got three options: Bank "X" is providing 5% interest compounded yearly. Bank "Y" is offering 5% interest compounded monthly. Bank "Z" is giving 5% interest compounded daily. Now, you are in puzzlement where to apply. So, let's use our calculator to find which one will provide you with more profit. We have created a calculator before. So, we are using that to perform this. Just we have to change the values. Computing Yearly Compound Interest for a Bank "X": Here, we are using this dataset to demonstrate all the examples: Steps First, type the following formula in Cell C9: Then, press Enter. After that, it will show you the Estimated balance. Now, to calculate the Gained Interest, simply type the following in Cell C10: As you can see, if we deposit our money to Bank "X", our future balance will be $16,288.95. Computing Monthly Compound Interest for a Bank "Y": Here, we going to do the same process as we did earlier. Steps First, type the following formula in Cell C9: Then, press Enter. After that, it will show you the Estimated balance. Now, to calculate the Gained Interest, simply type the following in Cell C10: As you can see, if we deposit our money to Bank "Y", our future balance will be $16,470.09. Computing Daily Compound Interest for a Bank "Z": If we calculate interest for Bank "Z", it will show the following: As you can see, if we deposit our money to Bank "Z", our future balance will be $16,486.65. Now, you can clearly determine the facts. If you deposit your money to Bank "Z" you will get more benefits. So, our daily compound interest calculator in Excel is working really great not only for daily compound interest but also for yearly and monthly calculations. Related Content: Formula for Monthly Compound Interest in Excel (With 3 Examples) An Advanced Excel Function to Find the Compound Interest Lastly, you can compute compound interest with Excel's built-in Future Value Function. Equivalent to the earlier methods, the FV function estimates the future value of an asset established on the values of particular variables. Syntax: =FV (rate, nper, pmt, [pv], [type]) Arguments: rate: Required. The interest rate for each period. nper: Required. The number of compounding periods. pmt: Required. The additional payment per period, and is represented as a negative number. If there is no value for "pmt," put a value of zero. pv: Optional. The principal investment, which is also represented as a negative number. If there is no value for "pv," you must include a value for "pmt." type: Optional. Indicates when additional payments occur. "0" indicates that the payments occur at the beginning of the period, and "1" indicates that the payments are due at the end of the period. Take a look at the following screenshot: We have used this dataset previously, we are using it again so that you can verify the result. Steps First, type the following formula in Cell C9: Here, to acquire the rate (which is the period rate) we use the annual rate/periods or C5/C6. To get the number of periods (nper) we use the (term * periods) or C7 * C6. There is no periodic payment, so we use zero. By pattern, the current value (pv) is input as a negative value, since the $10000 "leaves your wallet" and belongs to the bank during the period. In the end, you can also use this function to create a daily compound interest calculator in Excel. Things to Remember In daily compounding, it is supposed that all the interest investments will be reinvested at the same rate for the investment period. But honestly, the interest rate never stays the exact and changes. While computing compound interest, the number of compounding periods makes an influential difference. The higher the number of compounding years, the greater the compound interest. Conclusion To conclude, I hope this tutorial has provided you with a piece of useful knowledge to create a daily compound interest calculator in Excel. We recommend you learn and apply all these instructions to your dataset. Download the practice workbook and try these yourself. Also, feel free to give feedback in the comment section. Your valuable feedback keeps us motivated to create tutorials like this. Don't forget to check our website for various Excel-related problems and solutions. Keep learning new methods and keep growing! Related Articles

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