Calculating Compound Interest in Excel

What is compound interest and what is the formula for calculating it in Excel? This example provides answers to these questions.

1. 1. Let’s say you put $100 in the pot. How much will your investment be worth in a year at an annual interest rate of 8%?

      =A1*1,08

      Answer: $ 108.

   2. Next year, this interest ($8) will also earn interest (compound interest). How much will your investment be worth in two years at an annual rate of 8%?

      =A2*1,08

      

      Answer: $ 116,64.

   3. How much will your investment be worth after 5 years? Just drag the formula to the cell A6.

      Answer: $ 146,93.

   4. We just multiply 100 by 1,08 five times. So we can calculate the value of the investment after 5 years:

      =A1*1,08*1,08*1,08*1,08*1,08

      This is the same as:

      =A1*1,08^5

Note: There is no special function for calculating compound interest in Excel. However, you can easily create a compound interest calculator to compare different rates and different durations.

5. Let’s say you put $10000 in the bank. How much will your investment be worth after 10 years at a 5% annual rate with interest compounded every month?

   =B2*(1+B3/B4)^(B4*B5)

   

   Answer: $ 16470.

6. Let’s say you put $10000 in the bank. How much will your investment be worth after 15 years at a 4% annual rate with interest compounded every quarter?

   =B2*(1+B3/B4)^(B4*B5)

   

   Answer: $ 18167.