How to Calculate Savings Account Compound Interest with Excel

Though savings and money market account rates are about as stingy as they can get nowadays, you'll likely still want to have one for money that can't carry much risk and that needs to be readily available. To help you plan the growth of your account,  I'll explain how you can use Microsoft Excel to determine savings account interest for an account that compounds daily and pays interest monthly.

In order to calculate what you'll get in a savings account after receiving interest for a certain amount of time, you'll want to use Excel's FV financial formula. The FV stands for future value and Microsoft gives the forumula for FV as:

FV(rate, nper, pmt,[pv],[type])

Nper = number of periods and pv = present value, or what the account amount is right now. For the other particulars of the formula, consult Excel's help or Microsoft's online resources.

So let's say you're banking with a typical big U.S. firm in 2014 and are earning .05 percent on your account, which currently has $10,000.00 in it and gets an additional $100.00 from you deposited monthly.  Here is what you'd enter as your FV formula:

FV( .05/12,12,100,10000)

I didn't enter type in this example; you can learn more about the impact of that from Microsoft's documentation in Excel or online.

Your annual interest rate is .05 and because the bank pays out interest monthly, it's divided by 12, which ends up showing as the .05/12 in the formula.  The "12" that follows represents the number of periods, 100 is the monthly deposit, and 10000 is the present value.  After entering those values, you should end up with $10,005.00 at the end of the year.  Wow, that's not much.  Maybe it'd better if you didn't know!  No, actually, it's good because now you can see that your money isn't working for you and that you should try to find an online bank that pays out a better interest rate.

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