Interest Rate Calculator
Calculate annual interest rates, APR, and total interest earned or paid over time.
How Interest Rates Work
Interest is the cost of borrowing money or the return on an investment. It's expressed as a percentage of the principal amount.
Simple Interest Formula: Interest Rate (%) = (Total Interest ÷ Principal) ÷ Years × 100
Example: $10,000 interest ÷ $100,000 principal ÷ 1 year × 100 = 10% annual interest rate
Monthly Rate: Annual rate ÷ 12
Daily Rate: Annual rate ÷ 365
Simple vs. Compound Interest
Simple Interest: Calculated only on the principal. Interest = Principal × Rate × Time
Example: $1,000 at 5% simple interest for 3 years = $1,000 × 0.05 × 3 = $150 interest
Compound Interest: Calculated on principal plus accumulated interest. Much more powerful for long-term investments.
Example: $1,000 at 5% compound interest (annual) for 3 years = $1,157.63 total (interest = $157.63)
Compound interest works in your favor for investments but against you for loans.
APR vs. APY Explained
| Term | Definition | Usage |
|---|---|---|
| APR | Annual Percentage Rate (no compounding) | Credit cards, mortgages, car loans |
| APY | Annual Percentage Yield (with compounding) | Savings accounts, CDs, investment returns |
When comparing savings accounts, APY is more accurate because it includes the effect of compounding. When comparing loans, APR is the main figure to focus on.
Typical Interest Rates by Product
| Product | Typical Rate Range | Type |
|---|---|---|
| Savings Account | 0.01% - 0.5% | Earned (APY) |
| Credit Card | 15% - 25% | Paid (APR) |
| Mortgage (30-year) | 3% - 7% | Paid (APR) |
| Auto Loan | 2% - 8% | Paid (APR) |
| Student Loan | 2.75% - 8% | Paid (APR) |
Frequently Asked Questions
How do interest rates affect borrowing costs?
Higher interest rates increase your total borrowing cost. Even a 1% difference in interest rates can cost tens of thousands of dollars over a 30-year mortgage. Shop around for the best rates.
What factors determine interest rates?
Interest rates depend on credit score, economic conditions, loan type, loan term, down payment, and market conditions. The Federal Reserve also influences rates through monetary policy.
Can I negotiate my interest rate?
Yes, especially for mortgages, auto loans, and personal loans. Improve your credit score, shop around with multiple lenders, and consider paying points to lower your rate.