What's compound interest and what's the formula for compound interest in Excel? This example gives you the answers to these questions.
1. Assume you put $100 into a bank. How much will your investment be worth after one year at an annual interest rate of 8%? The answer is $108.
2. Now this interest ($8) will also earn interest (compound interest) next year. How much will your investment be worth after two years at an annual interest rate of 8%? The answer is $116.64.
3. How much will your investment be worth after 5 years? Simply drag the formula down to cell A6.
The answer is $146.93.
4. All we did was multiplying 100 by 1.08, 5 times. So we can also directly calculate the value of the investment after 5 years.
which is the same as:
Note: there is no special function for compound interest in Excel. However, you can easily create a compound interest calculator to compare different rates and different durations.
5. Assume you put $10,000 into a bank. How much will your investment be worth after 10 years at an annual interest rate of 5% compounded monthly? The answer is $16,470.
6. Assume you put $10,000 into a bank. How much will your investment be worth after 15 years at an annual interest rate of 4% compounded quarterly? The answer is $18,167.
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