Expert: Steve Holleran - 6/15/2007

Question
I am wondering how you calculate the future value of a series of monthly deposits with interest compounding on the balance monthly.

Is there a special formula for doing this? im aware of FV=PV(1+i)^n however i dont think this takes the monthly deposits into account.

eg: I deposit $500 into my savings account each month for 2 years with interest at 8% compounding monthly. How do i calculate the balance after 2 years?

Thanks very much for your assistance.

Answer
Hi Tim,

What you are discussing here is the Future Value of an Annuity.

If we let

P = the regular payment
i = the interest rate for each period
n = the number of periods,

the formula is :

       FV = P * [((1+i)^n -1) / i]

So, for your example, we have:

       FV = 500 * [ (1 + (.08/12))^24 - 1) / (.08/12)]

which I compute to come to $12,966.59

I hope this is what you were looking for.

Steve Holleran