How to Calculate Nominal Interest Rate

When you open a savings account or take out a loan from a financial institution, you will often be quoted an annual percentage rate, or APR. This percentage represents the interest rate of the account or loan with compounding factored in. You can use the APR to calculate the nominal interest rate and find the interest percentage without compounding included.

Instructions

1. Write down the APR of your account or loan and the number of years you plan to keep it.

2. Convert the APR to a decimal and add 1 to it. For example, if your account or loan has an APR of 5 percent, then you would add .05 and 1 to get 1.05.

3. Use a scientific calculator to put the result of Step 2 to the power of the inverse of the time period. For example, if your result from Step 2 is 1.05 and you are keeping the account or loan for 10 years, then you would put 1.05 to the power of 1/10 and get approximately 1.0049.

4. Subtract 1 from the result of Step 3. For example, if your result from Step 3 is approximately 1.0049, then you would subtract 1 from that and get .0049.

5. Use a scientific calculator to multiply the result from Step 4 by the time period in years to find the final nominal interest rate. For example, if your result from Step 4 is .0049 and you are keeping the account or loan for 10 years, then you would multiply .0049 by 10 to get .049, or 4.9 percent.