Interest Rate Calculator: Understanding the Cost and Value of Money

Interest rates are the "Price" of money. Whether you are paying interest on a loan or earning it on a savings account, understanding how the rate is calculated is essential for making smart financial choices. This Interest Rate Calculator helps you discover the true rate of a financial product when the numbers aren't clearly stated.

1. Nominal vs. Effective Interest Rate

• Nominal Rate: The stated rate on your contract.
• Effective Rate (EAR): The actual rate you pay or earn, accounting for the effects of compounding throughout the year.

For a true comparison of loan costs, always use our APR Calculator, which includes fees. If you are borrowing for a car, check our Auto Loan Calculator.

2. How Rates Affect Your Wealth

Even a small change in interest rates can have a massive impact over time.

• On a Mortgage, a 1% higher rate can cost you $100,000 extra.
• On an Investment, a 1% higher return can result in a much larger retirement nest egg due to Compound Interest.

3. FAQ

Q: Why do interest rates change? A: Rates are influenced by central bank policies (like the Federal Reserve), inflation, and the overall supply and demand for credit in the economy.

Q: What is a "Fixed" vs "Variable" rate? A: A fixed rate never changes for the life of the loan. A variable rate can go up or down based on market benchmarks.

Conclusion

Don't take the bank's word for it. Use this tool to calculate your own rates and ensure you are getting a fair deal. Enter your loan or investment details above to get started.