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I am familiar with the formula for calculating FV and compound interest of a deposit, but I am wondering if there is a formula that will allow me to calculate how much money I will have after depositing recurring amount of money every month, quarter or year, with a fixed annual interest rate and an optional initial deposit?

Let's say:

Initial/present value: 2500

Annual interest: 4%

Recurring deposit every month: 100

How much will the FV be after 5 years?

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What is the frequency of compounding the interest? Monthly? Quarterly? Annually? Does the deposit occur on the first day of each month and interest is paid on the last day of the month? Or some other arrangement? – Dilip Sarwate Aug 18 '12 at 13:31
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I am more interested in a general formula that will help me find out the FV by varying these options. (e.g. monthly, quarterly, annually compounding). As for the deposit, assume it at the beginning of the month and the interest is paid on the last day of the month. – ColorWP Aug 18 '12 at 13:40

1 Answer

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Let's break this into two parts, the future value of the initial deposit, and the future value of the payments:

  • D: deposit
  • i: interest rate
  • n: number of periods

D(1 + i)n

For the future value of the payments

  • A: amount of payments
  • i: interest rate
  • n: number of payments/periods

A((1+i)n-1) / i)

Adding those two formulas together will give you the amount of money that should be in your account at the end. Remember to make the appropriate adjustments to interest rate and the number of payments. Divide the interest rate by the number of periods in a year (four for quarterly, twelve for monthly), and multiply the number of periods (p) by the same number. Of course the monthly deposit amount will need to be in the same terms.

See also: Annuity (finance theory) - Wikipedia

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Could you check your formula D(1+i^n) for typographical errors? Shouldn't it be D(1+i)^n ? – Dilip Sarwate Aug 20 '12 at 1:59
@DilipSarwate Good catch! That was a bad one ... – C. Ross♦ Aug 20 '12 at 11:04
Could you elaborate on what is the connection between the two formulas? Should I just calculate the two formulas separately using the same interest rate (the first using the initial sum of 2500 and the second with the monthly deposits of 100) and then just add the two results? – ColorWP.com Oct 22 '12 at 10:03

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