## What Is Simple Interest?

Simple Interest doesn’t compound. In other words, Simple Interest is the interest calculated on the principal portion of a loan or the original contribution to a savings account. In addition, the account holder will gain interest only against the first deposit and the borrower will pay interest only on the initially borrowed amount.

## Arithmetic Formula to Calculate Simple Interest

We will use a very straightforward formula to find Simple Interests.

`I = p*r*t`

I = Simple Interest

p= Principal Amount

r = Rate of Interest

t = Time elapsed

## How to Calculate Simple Interest and Compound Interest in Excel: 2 Ways

In the following dataset, we have a **Principal Amount (p)** that is deposited in the bank for **5** years. The bank will provide **3% Simple Interest** each year. We will determine the interest amounts.

### Method 1 – Using Arithmetic Formula

__Steps:__

- To calculate the Simple Interest for
**Year 1**, use the following formula in cell**E5**.

`=C5*B5*D5`

- Drag the
**Fill Handle**to cell**E9**and you will get the results for the remaining years.

### Method 2 – Utilizing the FV Function to Calculate Simple Interest in Excel

Here, we are going to use the **FV function** (Future Value function). The function has the following arguments, in order:

- rate = rate of compounding interest
- nper = total number of payment periods
- pmt = amount of payment in each period
- pv = present value
- type = This indicates when payments are due. Use 0 for defining the end of the period and 1 for the beginning of the period.

In the case of Simple Interest, there is no Compounding Interest Rate. The rate in the **FV **function will be 0.

__Steps:__

- Use the following formula in cell
**E5**.

`=-FV(0,B5,(C5*D5),C5) `

- Subtract the
**Principal (p)**from the**Total FV**, and we will get the**Interest (I)**. Use the formula in cell**F5**to calculate our*Simple Interest*.

`=E5-C5`

- Select cells
**E5**and cell**F5**together. - Drag the
**Fill Handle**down.

- Here are the results.

**Read More: **How to Calculate Simple Interest Loan Payments in Excel

## What Is Compound Interest?

Compound Interest is when you earn interest on your interest. When you put money into a savings account that earns Compound Interest, you will get interest on both the money you put in and the interest that builds up over time.

## Arithmetic Formula to Calculate Compound Interest

We will use the following formula to calculate Compound Interest.

`CI = p(1+r/n)^nt`

CI = Compound Interest

p = Principal Amount

r = Rate of Compound Interest

n = Number of compoundings per unit time

t = Time

## 2 Methods to Calculate Compound Interest in Excel

We have a **Principal Amount (p)** deposited in a bank with a **5% Compounding Interest Rate**. In the data set, we have 5 types of compoundings. They are:

Compounding Type |
Number of Compounding Per Year (n) |
Explanation |
---|---|---|

Yearly | 1 | Once a year |

Half – Yearly | 2 | Once every 6 months ( 2 times a year) |

Quarterly | 4 | Once every 3 months ( 4 times a year) |

Monthly | 12 | Once every month ( 12 times a year |

Daily | 365 | Once every day ( 365 times a year) |

We’ll calculate the **Compound Interests** for these different types of compounding.

### Method 1 – Using Arithmetic Formula

__Steps:__

- Use the following formula in cell
**G5**.

`=C5*(1+(D5/F5))^(F5*B5)`

Cell **F5** denotes the cell of **Number pf Compounding Per Year**, and cell **G5 **represents the cell of **Final Amount**.

- To get the
**Compound Interest (CI)**we need to subtract the**Principal**from the**Final Amount**. Use the following formula in cell**H5**.

`=G5-C5`

- Select cells
**G5**and cell**H5**together. - Drag the
**Fill Handle**down or double-click it.

- Here’s the result.

### Method 2 – Applying the FV Function to Calculate Compound Interest in Excel

__Steps:__

- Use the following formula in cell
**G5**.

`=FV(D5/F5,B5*F5,0,-C5)`

- Use this formula in cell
**H5**.

`=G5-C5`

- Choose cells
**G5**and cell**H5**. - Double-click the
**Fill Handle**or drag it down.

- You’ll get all the results.

## Things to Remember

- While using the FV function to Calculate Simple Interest, make sure you put a
**negative sign**before it. Excel considers it as cash outflow. - Put a
**negative sign**before the**Present Value**while computing Compounding Interest Using the FV function.

**Download the Practice Workbook**

## Related Articles

- Convert Compound Interest to Simple Interest in Excel
- How to Calculate Simple Interest on Reducing Balance in Excel

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