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How to calculate compound interest rate using excel

Compound interest is the addition of interest to the principal sum of a loan or deposit, or we can say, interest on interest. It is the outcome of reinvesting interest, rather than paying it out, so that interest in the next period is earned on the principal sum plus previously accumulated interest. While simple interest is calculated only on the principal and (unlike compound interest) not on principal plus interest earned or incurred in the previous period. The total accumulated value, including the principal sum P plus, compounded interest I, is given by the formula: Where, P is the original principal sumP' is the new principal sumn is the compounding frequencyr is the nominal annual interest ratet is the overall length of time the interest is applied (expressed using the same time units as r, usually years). You are free to use this image on your website, templates etc, Please provide us with an attribution linkArticle Link to be HyperlinkedFor eg:Source: Compound Interest Formula in Excel () How to Calculate Compound Interest in Excel Formula? (with Examples) Let us understand the same using some examples of the Compound InterestTo calculate the compound interest in excel, the user can use the FV function and return the future value of an investment. To configure the function, the user must enter a rate, periods (time), the periodic payment, the present value. Compound interest formula = FV(rate,nper,pmt,pv)read more formula in excel. Example #1 ? Using Mathematical Compound Interest Excel Formula Suppose we have the following information to calculate compound interest in excel. This is like a compound interest calculator in excel now. We can change the value for Annual Interest Rate, the number of years, and Compounding periods per year as below. Example #2 ? Using the Compound Interest Calculation Table in excel Suppose we have the following information to calculate compound interest in a table excel format (systematically). Step 1 ? We need to name cell E3 as `Rate' by selecting the cell and changing the name using Name Box. Step 2 ? We have the principal value or present value as 15000, and the annual interest rate is 5%. To calculate the value of the investment at the end of quarter 1, we will add 5%/4, i.e., 1.25% interest to the principal value. The result is shown below: Step 3 ? We just need to drag the formula till C6 cell by selecting the range C3: C6 and pressing Ctrl+D. The future value after four quarters will be Rs. 15764.18. Example #3 ? Compound Interest Using FVSCHEDULE Excel Formula Suppose we have the following information to calculate compound interest in excel. We will use the FVSCHEDULE function to calculate future valueThe Future Value (FV) formula is a financial terminology used to calculate cash flow value at a futuristic date compared to the original receipt. The objective of the FV equation is to determine the future value of a prospective investment and whether the returns yield sufficient returns to factor in the time value of money.read more. FVSCHEDULE formula returns the future value of an initial principal after applying a series of compound interest rates. To do the same, the steps are: Step 1 ? We will initiate writing the FVSCHEDULE function into cell B6. The function takes two arguments, i.e., principal and schedule. Step 2 ? For `principal,' we will provide the reference of B1 cell, and for `schedule,' we will specify 0.0125 as this is the value we get when we divide the 5% with 4. The result is shown below: Now we apply the FVSCHEDULE formula in excel. Step 3 ? After pressing the Enter button, we get Rs. 15764.18 as the future value with compound interest in excel. Example #4 ? Compound Interest Using the FV Excel Formula Suppose we have the following data to calculate compound interest in excel. We will use the FV excel formula to calculate compound interest. FV function (stands for Future Value) returns the future value of an investment based on periodic, constant payments and a constant interest rate. The syntax of the FV function is The argument in the FV function is: We need to mention either the PMT or PV argument. We will specify the rate as `Annual Interest Rate (B2)/ Compounding periods per year (B4)'. We need to specify nper as `Term (Years) * Compounding periods per year.' As we will not be adding any additional amount to the principal value in between the investment period, that is why we will specify `0' for `pmt.' As we have omitted the value for `pmt' and we are investing Rs. 15000 as principal (present value), we will give reference of B1 cell with a negative sign for `PV.' After pressing the Enter button, we get Rs. 15764.18 as the future value with compound interest. Things to Remember about Compound Interest Formula in Excel We need to enter the interest rate in percentage form (4%) or in decimal form (0.04).As `PMT' and `PV' argument in FV function is outflows in real, we need to mention them in the negative form (with minus (-) sign).FV function gives #VALUE! Error when any non-numeric value is given as argument.We need to mention either PMT or PV argument in the FV function. Recommended Articles This has been a guide to Compound Interest Formula in Excel. Here we discuss how to use the Compound Interest formula in excel along with practical examples and a downloadable excel template. You may learn more about excel from the following articles ? CC0/Quincemedia/Pixabay In an ideal world, we would all find a way to make our money that is sitting in our banks work for us rather than, well, just sit there. One of the ways we can do that is by placing our money in accounts that offer a decent Annual Percentage Yield (APY), also known as interest. The average savings account is 0.06% which, needless to say, isn't very high. Some of the best interest rates in banks or financial institutions hover around the 1% mark, which is still not a huge percentage but does make a significant difference when broken down. Take, for example, $10,000 in an account that offers 1% APY. Over the course of the year, it will earn $100 for you rather than just $1 if it was only at 0.01% APY. Here are a few different ideas to help your money start making money.Certificates of Deposit One idea is to invest money in Certificates of Deposit (CD). They offer much higher interest rates than Savings Accounts but the catch is you won't be able to access the money for a set period of time which is predetermined by you. This could be anywhere from six months, which would offer a lower APY, to a much longer term such as five years which, you guessed it, has a much higher APY. If you do need to access the money before the set time period is completed, you will have to pay an early withdrawal fee which often defeats the purpose of the CD, so make sure you can financially set aside the money for the designated length of time before locking it up in a CD. More banks are also offering a CD ladder which allows you to divide the money into smaller chunks and put them in several CDs with varying term lengths. The idea is that you can then reinvest them once their term has expired. High-Yield Checking Account Another bank account option with decent interest rates is a high-yield checking account. Often banks will offer free checking accounts with low monthly maintenance fees and decent interest rates but you might have to keep a close eye on this type of account. Some banks will have terms and conditions that require you to set up direct deposit, have a minimum number of times in a cycle that the debit card needs to be used or require online bill pay. If these terms aren't met, they may very well slap on a fee which will take away all your hard earned interest. Credit Union While large traditional banks are convenient in that they have branches at every street corner and everyone knows them by name, bigger doesn't always mean better. Smaller financial institutions are well worth researching. Small credit unions often have higher interest rates on savings accounts, CDs and money market accounts. But in order to get one of these accounts, you need to be a member which can be decided by your job and where they are located. Some employers sponsor their own credit union, while others only include people who live or work in the area. If you have a family member who is already part of a Credit Union, they may very well allow you to join. Online Banks Another option for finding the best interest rates are online banks. Some people may still be skeptical about online banks and prefer to talk to people face to face when dealing with their money, but times are changing and online banking, in general, is becoming increasingly popular. Since these online banks do not have to pay for branches and tellers, they can afford to offer higher interest rates, often paying more than 1% APY. Just make sure that the bank is a member of Federal Deposit Insurance Corporation (FDIC), which would mean your deposits up to a quarter of a million are insured by the government. Read the Fine Print Whether you decide to put your money in a Savings Account or CD with a traditional bank, or invest it with a Credit Union or Online Bank, there are a few things to consider. Read the fine print and see if there is a minimum deposit that needs to be made or a fee that will be required if it drops below a certain amount. Some accounts have monthly withdrawal allowances or maybe even a hidden monthly fee. Banks, though, may also have other options that could be to your benefit if you are looking to invest a large sum of money. Some financial institutions may offer higher bonus rates to for accounts that deposit $50,000 or more within the first six months of opening the account. Whatever you decide, make sure you have invested time into researching the account that suits your needs and fits your budget. MORE FROM

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