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.
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Step 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.
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Step 2
In general, the formula is as follows:
Future value (Fv) = Initial Amount * (Pr+1)^number of savings periods. -
Step 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. -
Step 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
Comments
tnpos said
on 7/10/2009 Thanks For The Math lesson! 5 and rec! P.E.A.C.E
amazedanew said
on 3/5/2009 Thanks for the formula!
KMS09 said
on 8/8/2008 Very informative...5 STARS!
MidniteWriter said
on 8/7/2008 I could never figure this out before, but your formula makes sense, thank you!
Limowreck said
on 8/5/2008 This information is clear, concise, and well written. Thank you for this helpful article on building a savings account and growing wealth. *****