How to Calculate Interest Payments When Monies Are in Lump Sums

Many payment plans let you choose between receiving a series of periodic payments or a single lump sump. Though the lump sum gives you your money upfront, the separate payments offer you more money in total. Yet the lump sum can offer you more in the long term, because you can invest it and receive interest on the large principal. The interest you receive after any single year depends on the interest rate and on how much of the sum you spend.

Step 1

Type the amount in the lump sum into a financial calculator, and then press "PV." For example, if you receive $100,000, type "100000."

Step 2

Press "-" and type the amount that you plan to withdraw each year. For example, if you plan to spend $10,000 of the payment per year, type "-10000."

Step 3

Type the interest rate on the sum, and then press "i." For example, if you will receive 5 percent on the sum, type "5."

Step 4

Enter the number of years before the year whose interest payment you want to calculate, and then press "n." For example, to calculate your interest payment after 4 years, type "4."

Step 5

Press "compute" and then press "FV" to calculate the balance at that time. With this example, you will have $78,449 after 4 years.

Step 6

Multiply this principal by the interest rate. Continuing the example, multiply $78,449 by 0.05 to get $3,922. This is your interest payment.

Step 7

Repeat the process for any other years whose interest you want to calculate.

Items you will need

  • Financial calulator

Photo Credits

  • Jupiterimages/Photos.com/Getty Images

About the Author

Ryan Menezes is a professional writer and blogger. He has a Bachelor of Science in journalism from Boston University and has written for the American Civil Liberties Union, the marketing firm InSegment and the project management service Assembla. He is also a member of Mensa and the American Parliamentary Debate Association.

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