Interest Rate Calculator
Calculate interest rates and APR based on loan or investment details.
How is interest rate calculated?
The interest rate is calculated using the compound interest formula by solving for the rate given principal, final amount, time period, and compounding frequency. The formula is r = n × [(A/P)^(1/(n×t)) - 1], where A is final amount, P is principal, n is compounding frequency, and t is time in years.
What is APR?
APR (Annual Percentage Rate) is the yearly interest rate, including fees and costs. For simple calculations, it's the same as the annual interest rate. APR helps you compare different loan or investment products on an equal basis.
What's the difference between nominal and effective rate?
Nominal rate is the stated annual rate, while effective rate accounts for compounding frequency. More frequent compounding results in a higher effective rate. For example, 12% nominal compounded monthly = 12.68% effective annual rate.
Why does compounding frequency matter?
Compounding frequency affects how often interest is calculated and added to the principal. More frequent compounding (daily vs annually) means you earn interest on interest more often, resulting in higher overall returns or costs.