Compound interest is defined as “the interest on savings calculated on both the initial principal and the accumulated interest from previous periods.” Classically, known as “interest on interest”, this is the most common type interest used in every day finance situations.
To calculate compound interest
- on principal amount P
- at the rate of interest R
- for the number of years N
- and compounded T times per year
- we can use the formula = P*(1+R/T)^(N*T)
In this article, let me explain the necessary Excel formulas to calculate compound interest using your data.
In this Article
Compound Interest Excel Formula
Let’s say you borrow $5,000 at 5% interest rate for 10 years. The compounded value at the end of 10 years can be calculated with below Excel formula.
- Cell D4 has principal value: $5000
- Cell D5 has interest rate: 5%
- Cell D6 has years: 10
=D4*(1+D5)^D6
We can also calculate just the interest portion with this formula:
=D4*(1+D5)^D6 - D4
Compounding Once per Month
or 'T' Times per Year
It is common for compounding to be done more than once per year. In such cases, you can use below Excel formula logic to calculate the compound interest.
Below example shows compounding 4 times per year (ie, once every quarter).
' D20 has Principal Amount
' D21 has Rate of Interest
' D23 has number of years
' D24 has compounding terms per years
=D20*(1+D21/D23)^(D22*D23)
Compounding Every 'x' Months
If you want to calculate the effect of compounding every ‘x’ months, you can just below logic.
' D34 has Principal Amount
' D35 has Rate of Interest
' D36 has number of years
' D37 has number of months per compounding
=D34*(1+D35*D37/12)^(D36*12/D37)
Calculating Compound Interest with FV Function
Instead of using the P*(1+R/T)^(N*T) formula, you can use the FV () function (Future Value) to calculate the compounded value over time.
Here are a few examples:
$5000, 5%, 10 years, compounding once per year
'FV Syntax: FV(Interest Rate per term, Number of terms, , Principal Amount)
=FV(5%, 10,, -5000)
Output: $8144.47
$5000, 5%, 10 years, compounding 4 times per year
=FV(5%/4, 10*4,, -5000)
Output: $8218.10
$5000, 5%, 10 years, compounding x times per year
'Cell A1 has the Compounding Terms x
=FV(5%/A1, 10*A1,, -5000)
Compound vs. Simple Interest
Simple interest is defined as Principal x Interest Rate. It doesn’t change over time.
On the other hand, Compound Interest changes over time, as we calculate interest ON interest too.
Here is a quick demo of how Simple & Compound Interests compare over 20 years time, for $5,000 borrowed at 5% rate of interest.
'SIMPLE INTEREST FORMULA
=Principal * Rate_of_INTEREST
'COMPOUND INTEREST FORMULA
=Principal * (1 + Rate_of_INTEREST)^number_of_YEARS
Compounding Effect
“Compounding Effect” or that rapid growth of money over time often surprises people.
Imagine investing $5,000 at 5%, compounded annually for 20 years. Below table shows the effect of compounding on your money.
To calculate compounded value for various years, we can use below formulas.
'LIST OF 20 YEARS
=SEQUENCE(20)
'COMPOUNDED VALUE AT THE END OF EACH YEAR
'Amount is $5000, Rate of interest is 5%
=5000 * (1+5%)^SEQUENCE(20)
The compounding effect is starkly visible in the below graph.
Effect of Frequency on Compounding
You might think how often we compound would have an impact on the final value. But it does little.
For example, if we compare the outputs of $5,000 compounded at 5% at various frequencies, at the end of 20 years, the values would be:
- Once a year compounding: $13,266.49
- Twice a year: $13,452.32
- 4 Times a year: 13,507.42
- 6 Times a year: $13,535.21
- Every month (12 times): $13,563.20
- Every week (52 times): $13,584.88
- Every day (365 times): $13,590.48
The value hardly changes.
Below table shows how this looks over various time periods.
Interest Rate vs. Compounding
Interest rate on the other hand has a dramatic effect on the result of compounding.
For example, $5000 invested at 8% will be almost $11 million in a century!
Compounding is CRAZY!!!
$5,000 invested today at 1% interest would be worth $13,500 in 100 years.
Same money, but invested at 8% would be a whopping $10.9 million!
We can see the dramatic impact of rising interest rates on the compounded value with this table.
'Compounded value at various interest rates
'List of interest rates upto 20%
=SEQUENCE(20)/100
'COMPOUNDED VALUE AT VARIOUS RATES
'Amount is $5000, Duration is 20 years
'Compounded once per year
=5000 * (1+SEQUENCE(20)/100) ^ 20
Interest Rate vs. Compounding Graph
Effect of Compounding with Regular Payments
We can use Excel to figure out the compounded value with regular payments easily.
For example, if you invest
- $500 every month
- at 8%
- for 20 years
the final amount will be $294,510.21
To calculate this you can use the FV function, as shown below:
'FV Function Syntax
=FV(INTEREST_RATE, NUMBER_OF_PAYMENTS, PAYMENT_AMOUNT)
'Example with $500 monthly payment for 20 years at 8%
=FV(8%/12, 20 * 12, 500)
'OUTPUT
=$294,510.21
Here you can see the calculations and yearly balances for such regular (monthly) investments.
Rule of 72: Time to Double
A common thumb rule used in compounding is rule of 72.
RULE OF 72
To find out how long it takes for your money to double, divide 72 with rate of interest.
For example, at 8% interest rate, your money will double in 72/8 = 9 years.
You can use this when you don’t have the luxury of Excel or a calculator nearby to quickly calculate how long it takes for your money to double.
But what if I want to calculate the EXACT time it takes?
In such cases, you can use the formula =LOG(2) / LOG(1+Rate of Interest).
'Time to Double
'Exact formula
=LOG(2) / LOG(1+Rate_of_Interest)
'Approximate formula
=72/(Rate_of_Interest*100)
'Example at 8%
=LOG(2) / LOG(1+8%)
=9.01
=72 / (8% *100)
=9
In below example, you can see the rapid decrease in time it takes to double as the interest rate (rate of return) goes up.
Reverse of Compounding - The PV Function
We can use the PV (Present Value) function in Excel to calculate the principal value, given a compounded value.
For example, you want to save $100,000 for your daughter’s wedding, which you expect to be in 20 years. You expect the rate of interest to be 5%.
You want to know how much to save now to get $100k after 20 years.
Using the PV function as below, we can get that result.
'Reverse of Compounding
'Using PV Function to calculat the initial amount
'FUTURE AMOUNT = $100,000
'INTEREST RATE = 5%
'DURATION = 20 YEARS
'COMPOUNDING ANNUALLY
=PV(5%, 20,,-100,000)
=$37,688.95
Reverse of Regular Compounding - PMT Function
And we can use the PMT function to calculate reverse of the regular compounding.
Going back to the “saving for daughter’s wedding” case, you want to save up $100k for your daughter’s wedding in 20 years. You expect the interest rate to be 5%.
How much should you save every year?
or every month?
We can use the PMT function to figure out the regular amounts.
'Reverse of Compounding with Regular Payments
'Using PMT Function to calculat the regular payments from end value
'FUTURE AMOUNT = $100,000
'INTEREST RATE = 5%
'DURATION = 20 YEARS
'COMPOUNDING ANNUALLY
=PMT(5%, 20,,, -100000)
=$3,024.26
Compound Interest in Excel - VIDEO
Need to understand these formulas better?
Check out my quick and to-the-point video on Calculating Compound Interest in Excel.
Example Workbook with Compound Interest Calculations
I made an Excel file with over 20 examples (and more than 100 formulas). Click here to download the file and learn the concepts better.
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28 Responses to “Team To Do Lists – Project Tracking Tools using Excel [Part 2 of 6]”
[...] & tracking a project plan using Gantt Charts Team To Do Lists - Project Tracking Tools Part 3: Preparing a project time line [upcoming] Part 4: Time sheets and Resource management [...]
the templates are great (I bought the combo).
What I'm missing is a way to have the project gantt chart and reporting with the data per resource, in such a way that I can also show the occupation per resource on an extended gantt chart.
So with hours entered per person per project or sub-activity, to show a gantt chart of how many hours/days a person spent on which project (or plans to spend).
[...] from: Team To Do Lists - Project Tracking Tools using Excel [Part 2 of 6] 25 Jun 09 | [...]
Hi Chandoo,
Funny I have a post on the value of MS project lined up which I will post when the current monster project I'm working on finishes and I get some free time!
I'm not sure this would help with any of the projects I've worked on, closing down a to do list seems like more effort than it's worth, but it might be useful for some things. I guessing it doesn't, but does the time stamp not update when you recalculate the work book?
keep up the good work!
Ross
@Ross.. Thanks for sharing your ideas... I think to do lists are a great way to keep up with project activities and ensure accountability from individual team members, when they are implemented right.
"I guessing it doesn’t, but does the time stamp not update when you recalculate the work book?"
Your guess is right. When you change the calculation mode to "iterative", excel takes care of the nittygritties and retains older values in circular references in formulas.
[...] Project Management in Excel [New Series] - Gantt Charts | To Do Lists [...]
[...] & tracking a project plan using Gantt Charts Team To Do Lists - Project Tracking Tools Project Status Reporting - Create a Timeline to display milestones Part 4: Time sheets and Resource [...]
Hi Chandoo,
The template give me lot of convenience to monitor the thing to do. It simple. Thank You
[...] & tracking a project plan using Gantt Charts Team To Do Lists - Project Tracking Tools Project Status Reporting - Create a Timeline to display milestones Part 4: Time sheets and Resource [...]
[...] make sure you have read the first 4 parts of the series - Making gantt charts [project planning], team todo lists [project tracking], project time lines chart [reporting] and Timesheets and Resource Management using Excel. Also [...]
Chandoo,
I really do not see any befit to this function in Excel unless it was somehow tied into some other chart. That is say a scheduled activities % complete is based on the to-do list.
The only way this chart would be useful is if no one was assigned none dependent task that could be done by anyone. The cases were both of these conditions are true are so few and far between it really makes this chart worthless.
@Brian... Once you have a todo list up and running, it is easy to get metrics out of it. I didnt propose it as it might look a bit too micro-management-ish.
I am able to understand what you meant by "The only way this chart would be useful is if no one was assigned none dependent task that could be done by anyone. The cases were both of these conditions are true are so few and far between it really makes this chart worthless."
Can you explain?
"Chandoo"
What I mean is this. Lets say you have 10 task which are part of one activity/WBS that is in your schedule. One there are very few cases were many people would be assigned to complete this one scheduled activity with no direction being given who should what of the 10 task. It is poor management, and the task 90% of the time would not get done in a timely manner if say 4 people were responsible. Secondly, you are assuming all 10 task are independent of each other. You might need to do task 1 thru 3 before you can do task 4, and to do task 7 you might need to do 4 and 6. Thirdly, the time it would take to compile and then fill out the to-do-list even in limited applications is really not worth it.
I just see almost no applications why a team would need to inform others separate from the schedule that they have completed a task on a to-do list unless anyone of the 4 people could of completed that task.
My point is, there might be a few very limited applications for this type of list but this list would be worthless as a Project Management tool in every other case.
However, change this from a to-do-list to a document change log and it is perfect. Instead of to-do it is the documents name or summary of what changed in the document. The person is who edited the document, and the time stamp is when they checked it in. But I do not know why you would use excel when there is free software you can use commercially that is 10 times better that does document management.
I think using excel to do Project Management over a real Project Management application is a bad idea. Unless you are running a very small, simple project, the time and effort is a lot more to use excel compared to the cost of the Project Management software.
This comes back to my point, I love your site, however, just because you can do something in excel does not mean you should do it. To often the time it takes to use excel is wasted 10 times over from the cost of doing it in an application designed to for the specific application.
@Brian: The todo list mentioned here is meant to keep track of all the tasks for which detailed planning is not necessary but some sort of tracking is needed. These are not be confused with project activities (a la gantt chart).
I like your suggestion about using this as a document tracker. Pretty cool use.
Coming to your point about excel as a real project management tool, well, I have my views, but in a serious project environment, it would surely payoff to have a dedicated project management application.
[...] & tracking a project plan using Gantt Charts Team To Do Lists – Project Tracking Tools Project Status Reporting – Create a Timeline to display milestones Time sheets and Resource [...]
Chandoo,
Wonder how the timestamp column will maintain its previous data. Both Today() and Now() functions will update as and when the next timestamp happens.
[...] Preparing & tracking a project plan using Gantt Charts Part2: Team To Do Lists – Project Tracking Tools Part3: Project Status Reporting – Create a Timeline to display milestones Part4: Time sheets and [...]
I've combined this with the issue tracker since I like the automatic date stamp, but one thing I'm noticing is that I can't replicate the chart that goes along with the issue tracker because the cells that are referenced have the formula that inserts the time stamp instead of a the actual date value. All the dates of the last 30 days display 0 when they should have a value.
Is there a way around this?
I have edited the chart so that my team members can update the percentage completion of the assigned tasks. When the cell is updated, i would like the time stamp to update. How would I manipulate the formula to update whenever the drop-down list is changed?
[...] … ??? To Do List [...]
Excel is great however sometimes you need to get a better idea of what tasks each person on your team is working on at any given time. We've developed a web app that can do just that! Each person has a list of tasks, listed in the order they have to complete them.
HII,
I want to expand the database through excel where i am working on 11 cities as of now and i want to expand it upto 50 cities and hence forth the data related to it will also expand so i want to make it precise where i can get updates also that this work is required to be done at that particular day or date
Thanks for making all of this information available for free. I am currently using excel to track everything for the first time. I later plan to output our information here with a more visual presentation. Wish me luck!
Can some one point me out to some additional direction on the "Who Finished it?" column? Something more 'basic' for a newbie excel guy? lol I got everything else working on this tutorial but that column. I can't seem to recreate it and I know a lot of it is due to lack of knowledge with VB code. I'd like to recreate this column very much 🙁
Dear Chandoo,
Thanks for the team to do list, kindly let me know how to set the column who " finished it " from another work sheet
Hi Chandoo,
Unable to download it - can you please check the link and confirm.
Great inhisgt! That's the answer we've been looking for.
Hi Team,
I know u all are the best programmers in the world!!! that's I am here to rectify my issues. here is my question please ans me as soon as possible before 8-3-2017 its really urgent.
I have a project named the production tracker.
1) I require the user form which shows the names of the Associates which are linked to the different tracks. when the user is selected the particular track related details and dropdowns should appear.
2) I need to track the associate needs how much of the time to complete the particular task. with start stop and pause and resume timer.
3) It should display the daily count of the production and save the data to the another Excel file.
this production tracker should save all the data no matter how many people logs in into it.
Please help me for this it will be very appreciated.
you can directly email me on my mail ID: tusharkch694@gmail.com