### Author Topic: Compound Interest Calculator  (Read 10270 times)

#### thrifted

• Posts: 91
• Location: SAN DIEGO, CA
##### Compound Interest Calculator
« on: June 20, 2015, 11:55:06 AM »
HI guys,

I was wondering if any of you have found this compound interest calculator site helpful:

http://www.thecalculatorsite.com/finance/calculators/compoundinterestcalculator.php

I tested it out and I'm not sure what to think of it.  It looks like a lot of good news but perhaps its off. Maybe even way way off.  I was wondering if another mustachian could test it out, maybe even based on old retirement statements, to see how this fairs.

Work out the compound interest on your savings with these popular calculators. Use the first calculator to include regular monthly deposits or withdrawals (for retirement calculations, etc). Use the second calculator to work out interest on a simple lump sum savings amount. In our article archive, you can learn about compound interest or read our article explaining the formula for compound interest.

REGULAR DEPOSIT / WITHDRAWAL
STANDARD CALCULATOR
CURRENCY:
BASE AMOUNT:
ANNUAL INTEREST RATE: %
CALCULATION PERIOD:
REGULAR MONTHLY?
INCREASE DEPOSITS/WITHDRAWALS
YEARLY WITH INFLATION?
COMPOUND INTERVAL: ?

CALCULATION RESULTS
GRAPHS OF RESULTS
(interest compounded monthly - added at the end of each month)
Year   Year Deposits   Year Interest   Total Deposits   Total Interest   Balance
1   \$10,200.00   \$3,759.52   \$78,200.00   \$3,759.52   \$81,959.52
2   \$10,200.00   \$4,473.72   \$88,400.00   \$8,233.24   \$96,633.24
3   \$10,200.00   \$5,224.45   \$98,600.00   \$13,457.70   \$112,057.70
4   \$10,200.00   \$6,013.60   \$108,800.00   \$19,471.30   \$128,271.30
5   \$10,200.00   \$6,843.12   \$119,000.00   \$26,314.42   \$145,314.42
6   \$10,200.00   \$7,715.08   \$129,200.00   \$34,029.49   \$163,229.49
7   \$10,200.00   \$8,631.65   \$139,400.00   \$42,661.14   \$182,061.14
8   \$10,200.00   \$9,595.11   \$149,600.00   \$52,256.24   \$201,856.24
9   \$10,200.00   \$10,607.86   \$159,800.00   \$62,864.11   \$222,664.11
10   \$10,200.00   \$11,672.43   \$170,000.00   \$74,536.54   \$244,536.54
11   \$10,200.00   \$12,791.47   \$180,200.00   \$87,328.01   \$267,528.01
12   \$10,200.00   \$13,967.76   \$190,400.00   \$101,295.77   \$291,695.77
13   \$10,200.00   \$15,204.22   \$200,600.00   \$116,499.99   \$317,099.99
14   \$10,200.00   \$16,503.95   \$210,800.00   \$133,003.94   \$343,803.94
15   \$10,200.00   \$17,870.18   \$221,000.00   \$150,874.12   \$371,874.12
16   \$10,200.00   \$19,306.30   \$231,200.00   \$170,180.42   \$401,380.42

Regular Deposit CalculationBase amount: \$68,000.00
Interest Rate: 5%
Effective Annual Rate: 5.12%
Calculation period: 16 years

http://www.thecalculatorsite.com/finance/calculators/compoundinterestcalculator.php

#### forummm

• Walrus Stache
• Posts: 7374
• Senior Mustachian
##### Re: Compound Interest Calculator
« Reply #1 on: June 20, 2015, 01:11:18 PM »
Did you test it with results from Excel or other calculators (say http://www.investor.gov/tools/calculators/compound-interest-calculator)?

If they aren't the same, then maybe something is off.

But compound interest is really powerful. The numbers could be right. Continually saving and investing is a great way to make a lot of money.

#### MDM

• Senior Mustachian
• Posts: 11492
##### Re: Compound Interest Calculator
« Reply #2 on: June 20, 2015, 01:11:28 PM »
It seems fine.  Matches Excel:

Code: [Select]
`PV 68000PMT 850i 5.000%n 16freq 12type 1FV \$401,380.42`

#### mozar

• Magnum Stache
• Posts: 3503
##### Re: Compound Interest Calculator
« Reply #3 on: June 20, 2015, 04:17:18 PM »
I didn't look at a calculator, but after 16 years at 5% it seems reasonable.

#### mohawkbrah

• Bristles
• Posts: 272
• Age: 28
• Location: Herefordshire, UK
• every day they see me hustling those pennies away
##### Re: Compound Interest Calculator
« Reply #4 on: June 21, 2015, 05:32:01 AM »
my problem with those calculators is a too optimistic interest rate of 10% XD

makes me think i'll be rich in 5 years

when in reality there could be a stock crash next week and lose 40% value

#### kpd905

• Handlebar Stache
• Posts: 2029
##### Re: Compound Interest Calculator
« Reply #5 on: June 21, 2015, 06:15:51 AM »
my problem with those calculators is a too optimistic interest rate of 10% XD

makes me think i'll be rich in 5 years

when in reality there could be a stock crash next week and lose 40% value

You get to choose the interest rate.

#### forummm

• Walrus Stache
• Posts: 7374
• Senior Mustachian
##### Re: Compound Interest Calculator
« Reply #6 on: June 21, 2015, 06:55:09 AM »
my problem with those calculators is a too optimistic interest rate of 10% XD

makes me think i'll be rich in 5 years

when in reality there could be a stock crash next week and lose 40% value

You get to choose the interest rate.

And stock returns are only for long term investing. Sure, in the next 30 years, it could easily go down 40% twice or even three times. But over the next 30 years the CAGR should be something more like the historical average of 6 or 7% real.

#### expectopatronum

• Stubble
• Posts: 225
• Location: Texas
##### Re: Compound Interest Calculator
« Reply #7 on: June 21, 2015, 12:33:14 PM »
I'm glad this topic is here - I was wondering how one would calculate this in Excel. If we are trying to figure, for example, the value of \$10K in 20 years, contributing \$10K per year at 6% returns...does that mean you use the formula which compounds interest annually or monthly? Which is more reflective of the way it works as an investment in the stock market?

freq = 12 I take to mean compounded 12 times per year?

Sorry to bring such an amateur question to the table.

#### MDM

• Senior Mustachian
• Posts: 11492
##### Re: Compound Interest Calculator
« Reply #8 on: June 21, 2015, 12:48:48 PM »
I'm glad this topic is here - I was wondering how one would calculate this in Excel. If we are trying to figure, for example, the value of \$10K in 20 years, contributing \$10K per year at 6% returns...does that mean you use the formula which compounds interest annually or monthly? Which is more reflective of the way it works as an investment in the stock market?

freq = 12 I take to mean compounded 12 times per year?

Sorry to bring such an amateur question to the table.

Very reasonable question.

The difference between annual and monthly compounding is less than, for example, the difference between 6% vs. 5.9% or 6.1%, no matter whether compounded monthly or annually (or daily or continuously, for that matter).  Many times people don't specify the compounding period when tossing out percentages, but fortunately it really doesn't matter for back of the envelope calculations like this.

In a legal contract, you would want it specified.

You can see some of these formulas on the 'Misc. calcs' tab of the case study spreadsheet.  In that context, yes "freq" is the number of times per "units of n" the interest given in "% per units of n" is compounded.
« Last Edit: June 21, 2015, 12:50:38 PM by MDM »

#### patrickza

• Pencil Stache
• Posts: 555
• Age: 45
##### Re: Compound Interest Calculator
« Reply #9 on: June 21, 2015, 02:02:48 PM »
I made my own one for 2 reasons. Firstly I wanted to see the value of the answer in today's money, and secondly because I wanted to be able to share the results by URL. It's marked in R not \$, but that doesn't change the numbers at all. If you like I can make the currency selectable.

#### expectopatronum

• Stubble
• Posts: 225
• Location: Texas
##### Re: Compound Interest Calculator
« Reply #10 on: June 21, 2015, 06:07:53 PM »

Very reasonable question.

The difference between annual and monthly compounding is less than, for example, the difference between 6% vs. 5.9% or 6.1%, no matter whether compounded monthly or annually (or daily or continuously, for that matter).  Many times people don't specify the compounding period when tossing out percentages, but fortunately it really doesn't matter for back of the envelope calculations like this.

In a legal contract, you would want it specified.

You can see some of these formulas on the 'Misc. calcs' tab of the case study spreadsheet.  In that context, yes "freq" is the number of times per "units of n" the interest given in "% per units of n" is compounded.

Thanks all! I didn't know this; I had assumed that the "power of compounding" was somehow going to make a dramatic difference for the monthly vs annual assumption. I'm still quite intimidated by the spreadsheet, but got stuck when I tried to make my own.

@patrickza, I'm having trouble locating your spreadsheet (flipped through old posts and attachments) - would you mind linking? Is it via the website in the signature? Didn't see a spreadsheet.

#### MDM

• Senior Mustachian
• Posts: 11492
##### Re: Compound Interest Calculator
« Reply #11 on: June 21, 2015, 06:45:59 PM »
I'm still quite intimidated by the spreadsheet, but got stuck when I tried to make my own.

As the saying goes, don't try to eat the elephant all at once - take it one bite at a time.  E.g., see cells I2 through I8 and you should be able to replicate the table below.  Then change some of the inputs to see what happens....
Code: [Select]
`PV 68000PMT 850i 5.000%n 16freq 12type 1FV \$401,380.42`

#### thrifted

• Posts: 91
• Location: SAN DIEGO, CA
##### Re: Compound Interest Calculator
« Reply #12 on: June 26, 2015, 04:42:08 AM »
Thanks everyone! This was really helpful.

#### patrickza

• Pencil Stache
• Posts: 555
• Age: 45
##### Re: Compound Interest Calculator
« Reply #13 on: June 27, 2015, 07:28:38 AM »
@patrickza, I'm having trouble locating your spreadsheet (flipped through old posts and attachments) - would you mind linking? Is it via the website in the signature? Didn't see a spreadsheet.