How to Calculate The Future Value of Savings

Let's say that you have some money in an interest bearing savings account of some sort. You may want to know how much that money will become over a certain period of time. This article will tell you how to do that calculation. Even though the government statistics say that most of us don't save money, I certainly hope that you do.

Instructions

Difficulty: Moderate

Things You’ll Need:

• A interest bearing account to save your money in.
• You need to know the interest rate, the amount you are planning to keep under deposit.
• Your time frame.
• A calculator.

1. Once you know your annual interest rate, you need to decide how long of a period of time you are planning to keep the money in that account. If it is months, we will calculate a periodic rate (Pr) based on months. If it is years, we will calculate a Pr based on the annual interest rate.
2. In general, the formula is as follows:
   
   Future value (Fv) = Initial Amount * (Pr+1)^number of savings periods.
3. Let's do an annual example first. Let's say that you have $1,000, on deposit with a savings institution that pays 3.5% per year. You want to know what that will be worth in 30 years.
   
   Since the period is years, the periodic rate equals the annual interest rate, expressed as a decimal.
   
   Fv = 1,000 * (.035 + 1)^30 = 2,806.79
   
   The value of your savings, assuming a constant interest rate, would be $2,806.79.
4. Now let's do an example based on a monthly time period. Let's say you have $10,000 on deposit with an annual rate of 3.6%, and you want to know the value in 11 months.
   
   Pr = .036/12 = .003
   Fv = 10,000 * (1.003^11) = 10,334.99
   
   The value of your savings, assuming a constant interest rate, would be $10,334.99

Tips & Warnings

• Your periodic rate is equal to the annual rate divided by the time period in question.