Formula used to calculate interest for reccuring deposit?

Answer 1

You would use the FV function, which calculates the Future Value of an investment. It has 5 arguments, two of which are optional, shown here in square brackets:

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

Rate is the percentage rate.

You would enter the interest rate of the investment , divided by the number of times per year you expect to make deposits into the investment account. So if it was 3% per annum, and you were making monthly deposits, then you would have 03/12 in the rate section of the formula.

Nper is the number of periods of the investment. So if it was a 10 year investment, with a deposit each month, you would put 120 in here. You could also put in 10*12 instead.

Pmt is the amount of the recurring deposit. This can be put in as a negative value, as it is seen as money going out, in order to give a positive total at the end. Another possible approach is to put it in as a positive value and have a minus at the start of the formula, after the equals sign, in order to get a positive result.

Pv is the present value of the investment. Usually you are starting from 0 and if you do not put anything there, this is what it will use.

Type is either 0 or 1, and determines whether a payment is due at the end of each payment, which is 0, or at the beginning. Usually it is at the end, so you could put 0 but as it is the standard, it can be left out.

So if you were making a monthly deposit of 250 for 10 years at a rate of 3% per annum, the formula would be as follows:

=FV(0.03/12,10*12,-250)

This would give you a result of 34,935.35 as the total value of the investment. To find the actual interest, you could just deduct the amount of the investments, which in this case would be 30,000. So the interest would be 4,935.35 after the full term of the investment.