What is a Compound Interest Calculator Excel?
Before we look at the Compound Interest Calculator Excel firstly lets understand what Compound Interest actually is.
Compound Interest is Interest which is paid on a principle sum and then on the interest already earned by that principle sum.
Let’s take an easy example of Compound Interest on a particular loan or investment
If we invest a sum of $1000 (one thousand dollars) at an annual interest rate of 10% then the equation will look like this:
Start: $1,000 (principle) *10% for 1 year
End Year One: $1,000 + ($1,000* 0.1) * 1 = $1,100
Start Year Two: $1,100 + ($1,100 * 0.1) * 1 = $1,210
Start Year Three: $1,210 and then the same formula, and so on.
As you see the Interest accrued in one year is added to the principal amount. The subsequent years take the new principal amount and continue to add interest to it annually.
Simplified, the formula for the first year of the above mentioned equation is:
SUM=(1000+(1000*0.1)*1)
The above example shown of the Compound Interest Calculator Excel is in terms of banking, very simple. This is because the time value used is one year.
Very often in these calculations, the interest rate may well be added quarterly or semi annually. You will also find the rate may not be a nice round figure, like 10%. It will invariably be an odd quarter or half of a percent. The time period will also vary. It van be whole years or portions of years. This variation in figures will not matter to your ready made spreadsheet.
So there are many different ways to use a Compound Interest Formula Excel to calculate these sums and where there are different outcome requirements. Sometimes with/without principle added, sometimes variable interest rates, sometimes variable terms.
Often, as well as a financial number at the end of the calculation there may be a requirement for a graph. This will be able to show a visual picture of the financial progression of the money over the given time.
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