Enter the initial amount, monthly contribution, annual interest rate, and the number of years into the calculator to determine the future value of your savings.
Saving Growth Formula
The following formula is used to calculate the future value of savings:
FV = P * (1 + r)^n + PMT * [((1 + r)^n - 1) / r]
Variables:
- FV is the future value of the savings ($)
- P is the initial amount ($)
- PMT is the monthly contribution ($)
- r is the monthly interest rate (annual interest rate / 12)
- n is the total number of months (years * 12)
To calculate the future value of savings, first, convert the annual interest rate to a monthly rate by dividing by 12. Then, raise this rate plus one to the power of the total number of months. Multiply this result by the initial amount to get the first part of the future value. For the second part, multiply the monthly contribution by the result of raising one plus the monthly interest rate to the power of the total number of months minus one, divided by the monthly interest rate. Finally, add both parts to get the future value of the savings.
What is Saving Growth?
Saving growth refers to the increase in the value of savings over time due to contributions and the compounding effect of interest. It is an important concept in personal finance and investment planning, as it helps individuals understand how their savings can grow through regular contributions and the earning of interest over time.
How to Calculate Saving Growth?
The following steps outline how to calculate the Saving Growth.
- First, determine the initial amount (P) in dollars.
- Next, determine the monthly contribution (PMT) in dollars.
- Next, determine the annual interest rate and convert it to a monthly rate (r) by dividing by 12.
- Next, determine the number of years and convert it to months (n) by multiplying by 12.
- Next, gather the formula from above = FV = P * (1 + r)^n + PMT * [((1 + r)^n - 1) / r].
- Finally, calculate the future value of the savings (FV) in dollars.
- After inserting the variables and calculating the result, check your answer with the calculator above.
Example Problem :
Use the following variables as an example problem to test your knowledge.
Initial amount (P) = $5,000
Monthly contribution (PMT) = $200
Annual interest rate = 5%
Years = 10
