Savings Account Calculator Excel

Compound Interest Formula:

\[ A = P \times \left(1 + \frac{r}{n}\right)^{n \times t} \]

Principal Amount (P):

Annual Interest Rate (r):

Compounding Periods per Year (n):

Time in Years (t):

Final Amount (A):

Total Interest Earned:

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1. What is Compound Interest?

Compound interest is interest calculated on the initial principal and also on the accumulated interest of previous periods. It causes wealth to grow faster than simple interest, where interest is calculated only on the principal amount.

2. How the Calculator Works

The calculator uses the compound interest formula:

\[ A = P \times \left(1 + \frac{r}{n}\right)^{n \times t} \]

Where:

$ A $ — Final amount ($)
$ P $ — Principal investment amount ($)
$ r $ — Annual interest rate (decimal)
$ n $ — Number of times interest is compounded per year
$ t $ — Time the money is invested for (years)

Explanation: The formula accounts for periodic compounding, where interest is added to the principal at regular intervals, resulting in exponential growth.

3. Importance of Compounding

Details: The more frequently interest is compounded, the greater the return. Over long periods, compound interest can significantly increase investment growth compared to simple interest.

4. Using the Calculator

Tips: Enter the principal amount, annual interest rate, compounding frequency (e.g., 12 for monthly), and investment period in years. The calculator will show the final amount and total interest earned.

5. Frequently Asked Questions (FAQ)

Q1: How does compounding frequency affect returns?
A: More frequent compounding (e.g., daily vs. annually) results in higher returns due to the "interest on interest" effect occurring more often.

Q2: What's the difference between APR and APY?
A: APR (Annual Percentage Rate) doesn't account for compounding, while APY (Annual Percentage Yield) does. APY gives the true annual rate of return.

Q3: How can I use this in Excel?
A: Use the formula =P*(1+r/n)^(n*t) where P, r, n, and t are cell references containing your values.

Q4: What's the Rule of 72?
A: A quick way to estimate doubling time: 72 divided by the interest rate gives approximate years to double your money at that rate.

Q5: How important is the interest rate?
A: Small rate differences have large impacts over time. A 1% higher rate could mean significantly more money after decades of compounding.