Banks offer interest to their clients for depositing money in their banks. Alternatively, clients need to pay interest to the banks for loans. So, we often need to calculate interest for loans or deposits. This article shows how to create a bank interest calculator excel sheet easily. The following picture gives an idea of what the article is about. ## Terms Related to Bank Interest Calculation

Take a quick look at the following terms. It will help to understand the calculations.

Principal Amount (P): The balance at the beginning of the calculation.

Interest Rate (R): The rate at which interest is given.

Period (N): Number of periodic durations of the deposit or loan.

Compound Interest: Compound Interest extends to the added interests also. Banks mainly deal with compound interest.

Simple Interest: Simple interest works on the Principal Balance only. Banks may offer simple interest in special circumstances.

Compound Frequency (T): In the case of compound interest, interests are usually compounded daily, monthly, quarterly, semi-annually, and annually. Then the number of Compounding Times will be 365, 12, 4, 2, and 1 respectively.

## Simple Interest Calculation in Excel

We can easily calculate Simple Interest using the following formula:

Simple Interest = Principal Amount Rate of Interest Time Periods

Follow the steps below to apply this formula.

Steps

• Assume we have the following dataset. • Now, to find Simple Interest, enter the following formula in cell C9:
`=C4*C5*C6`
• You will see the result as follows: • Now, to calculate the final balance with interest added, apply the following formula in cell C10:
`=C4+C9`
• You will see the accumulated balance as shown below. • At the end of each year, your account balance will be as follows. ## Compound Interest Calculation in Excel

We can calculate compound interest using the formulas given below.

• Compounded Amount (A) = P ✕ (1 +  I / T)  ✕ N ✕ T
• Compound Interest = (A – P)

Follow the steps below to apply those formulas.

Steps

• At first, apply the following formula in cell C12:
`=C4*(1+C5/C7)^(C6*C7)` • After that, enter the following formula in cell C13 to get the compound interest.
`=C12-C4` • At the end of each quarterly period, your account balance will be as follows. • You can use this as a template for your bank interest calculator excel sheet.

## Bank Interest Calculation in Excel for Different Interest Rates

Assume that you need to calculate the interest rates for the following dataset. Steps

• First, enter the following formula in cell C10:
`=C9*C5*\$C\$6`
• Then, use the fill handle tool to get other interest amounts. • After that, apply the following formula in cell C11 to get the compound interest. Use the fill handle tool as earlier.
`=C9*(((1+C5/\$C\$7)^(\$C\$6*\$C\$7))-1)` • Next, to understand the above formula, just compare it to the following formula:
`= P*(((1+R/12)^(N*T))-1)`
• If you need to calculate the accumulated amounts, you can follow the earlier methods.

## EMI Calculation Using the PMT Function in Excel

Equated Monthly Installments or EMI is a very popular phenomenon nowadays. It is a fixed monthly payment by the borrower to repay a loan. You must learn how to calculate EMI to optimize your lending or borrowing options.

Assume, you want to buy a car for \$35,000 and complete the payment in 12 EMIs at 5% yearly interest rate.

Follow the steps below to calculate the EMI.

Steps

• At first, apply the following formula in cell C8:
`=(((C4*C5/12)*(1+C5/12)^C6))/(((1+(C5/12))^C6)-1)` • You can easily understand the above formula by observing and comparing the following formula.
`=(((P*R/12)*(1+R/12))^N]/(((1+R/12)^N)-1)`

Fortunately, excel also has an inbuilt function called the PMT function to calculate EMI.

How does the formula work?

The PMT function has the following arguments:

`=PMT(rate,nper,pv,[fv],[type])`

The arguments signify the followings:

• Rate = Rate of interest applied on the borrowing.
• NPER = Number of monthly installments per loan term which is N in this case.
• PV = Present value or Principal amount (P)
• FV = Future value after last payment which is 0 in this case
• Type = 1 or 0. The payment due at the beginning of the month indicates 1 and 0 if it is at the end of the month.

Now, let’s check out this formula.

• First, enter the following formula instead in cell C8:
`=PMT(C5/12,C6,C4,,0)` • Your monthly installments will be as follows. ## Things to Remember

• Don’t forget to convert the yearly interest rate to monthly, quarterly, etc. interest rate by dividing it by the compounding times (T).
• Make sure to use the absolute references properly.

## Conclusion

Now you know how to calculate simple and compound interests, interests with conditional interest rates, and EMIs. Please use the comment section below for further queries or suggestions. You may visit our Exceldemy blog to learn more about excel to improve your performance. #### Md. Shamim Reza

Hello there! This is Md. Shamim Reza. Working as an Excel & VBA Content Developer at ExcelDemy. We try to find simple & easy solutions to the problems that Excel users face every day. Our goal is to gather knowledge, find innovative solutions through them and make those solutions available for everybody. Stay with us & keep learning.

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