How to Calculate Annual Interest Rates
- 1). Write down the quoted interest rate of your savings account or loan and the number of years you plan to keep the account or loan.
- 2). Convert the quoted interest rate into a decimal, then divide it by the number of years you plan to keep the account or loan. For example, if you have a savings account with 5 percent interest and want to keep the account for 10 years, then divide .05 by 10 to get .005.
- 3). Add 1 to the result from Step 2. For example, if your result from Step 2 was .005, then add 1 to get 1.005.
- 4). Put the result from Step 3 to the power of the number of years. For example, if your result from Step 3 was 1.5 and you plan to keep the account for 10 years, then put 1.005 to the power of 10 to get approximately 1.0511.
- 5). Subtract 1 from the result of Step 4 to calculate the real annual interest rate. For example, if your result from Step 4 was approximately 1.0511, then subtract 1 from that to get .0511, or an interest rate of 5.11 percent.
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