# Calculating Interest

Here I will show you how to calculate compound interest as well as normal interest.

**COMPOUND INTEREST**

To calculate compound interest in Excel, you can use the **FV function**. This example assumes that R1000 is invested for 10 years at an annual interest rate of 5%, compounded monthly.

Here is the formula

=FV(C6/C8,C7*C8,0,-C5)

The FV function can calculate compound interest and return the future value of an investment. To configure the function, we need to provide a rate, the number of periods, the periodic payment, the present value.

To get the rate (which is the period rate) we use the annual rate / periods, or C6/C8.

To get the number of periods (nper) we use term * periods, or C7 * C8.

There is no periodic payment, so we use zero.

By convention, the present value (pv) is input as a negative value, since the R1000 “leaves your wallet” and goes to the bank during the term.

The solution goes like this this:

=FV(C6/C8,C7*C8,0,-C5) =FV(0.05/12,10*12,0,-1000) =FV(0.00417,120,0,-1000) =1647

**NORMAL INTEREST**

interest=principal*rate*term

To calculate simple interest in Excel (i.e. interest that is not compounded), you can use a formula that multiples principal, rate, and term.

This example assumes that R1000 is invested for 10 years at an annual interest rate of 5%. Simple interest means that interest payments are not compounded – the interest is applied to the principal only.

In the example shown, the formula in H10 is:

=I5*I7*I6

### How this formula works

The general formula for simple interest is:

interest=principal*rate*term

So, using cell references, we have:

=I5*I7*I6 =1000*10*0.05 =500