Corporate strategy and planning are heavily reliant on financial considerations. We have a high level of financial choices to be made in our daily lives. Excel has several functions and formulas that are specifically developed to calculate the interest rate in Excel for a given time in such situations.

**Table of Contents**Expand

## How to Calculate Interest Rate in Excel: 3 Suitable Ways

Weâ€™ll go through four different approaches to determine the interest rate in the sections below. An example data set is provided in the image below to do the computation. Weâ€™ll calculate the **Monthly **and **Yearly Interest Rates**, as well as the **Effective **and **Nominal Interest Rates**, using formulas and functions.

### 1. Use Formula to Calculate Periodic Interest Rate in Excel

Weâ€™ll start by calculating the interest rate for a specific time period, such as months or years. We will compute the interest rate for months and then for years in the two subsections below. Follow the steps outlined below to do so.

We will apply **the** **RATE function **to have done it.

=**RATE**(*nper, pmt, pv, *[*fv*]*, *[*type*], [*guess*])

Here,

**Nper**(required) â€“ total payment periods number (years, months)**Pmt**(required) â€“ the pre-set payment amounts each period that cannot be varied over the annuityâ€™s lifetime. It generally involves principal and interest but excludes taxes.**Pv**(required) â€“ the present worth of the loan.**Fv**(optional) â€“ the future worth, or the cash balance you want after the last installment It defaults to**0**if not specified.**Type**(optional) â€“ specifies the date on which the payments are made:- Payment is due at the end of the period if
**0**or absent (default). **1**â€“ the first payment is required at the start of the period.**Guess**(optional) â€“ your best guess as to what the rate may be If you leave it blank, it defaults to**10%.**

#### 1.1 Monthly Interest Rate

**Step 1:**

- To calculate the monthly interest rate, we will select cell
**F4**. In cell**F4**, type the following formula.

`=RATE(C4,-C5, C6)`

**Step 2:**

- Then, press
**Enter**to get the**Interest Rate**.

#### 1.2 Annual Interest Rate

We compute the monthly interest rate first, then multiply by **12 **to get the annual interest rate. To understand, follow the steps below.

**Step 1:**

- Type the following formula in cell
**F4**.

`=RATE(C4,-C5, C6)`

**Step 2:**

- Because years include
**12**months, multiply the previous calculation by the value of**C7**or write the following formula to get the annual interest rate.

`=RATE(C4, -C5,C6)*C7`

- Therefore, the Annual Interest Rate will be shown in cell
**F6**.

**Notes. **Â Pay attention to the **C5 **cell; it is in negative form since the payment will be reduced after each transaction. It will show a #**NUM** error if you donâ€™t put the value in negative.

### 2. Apply Formula to Calculate Effective Interest Rate in Excel

The phrase **effective interest rate**Â denotes the genuine yearly return on an investment that is obtained as a result of compounding over time. We may do it in two ways: using the conventional compound interest method or simply using a function. Follow the steps outlined below in two sections.

Here,

**i**= the rate of interest.**n**= number of the compounding periods.

#### 2.1 Use the Formula of Compound Interest

**Step 1:**

- To input the formula of effective interest rate, simply type the formula.

- The formula is,

`=(1+C4/C5)^C5 - 1`

**Step 2:**

- Then, press
**Enter**to see the results.

#### 2.2 Use the EFFECT Function

**Step 1:**

- In cell
**C8**, type the formula of**the EFFECT function**.

`=EFFECT(C4, C5)`

**Step 2:**

- Finally, press
**Enter**to get the**Effective Interest Rate**.

### 3. Convert Effective Interest to Nominal Interest

Additionally, you can get back to the **Nominal/Simple Interest Rate** from the **Effective Interest Rate**. To do so, follow the steps of applying** the NOMINAL function**.

**Step 1:**

- Firstly, enter the following formula of the
**NOMINAL function**.

`=NOMINAL(C7, C5)`

**Step 2:**

- Then, press
**Enter**to get the**Nominal Interest Rate**.

**Read More:** Nominal vs Effective Interest Rate in Excel

**Download Practice Workbook**

Download this practice workbook to exercise while you are reading this article.

## Conclusion

To summarize, I hope you have gained a good grasp of how to calculate interest rates in Excel as a result of this essay. All of these methods should be learned and applied to your dataset. Examine the practice book and put your newly acquired skills to the test. Weâ€™re encouraged to keep developing classes like this because of your critical support.

If you have any questions, please do not hesitate to contact us. Please share your ideas in the comments section below.

## How to Calculate Interest Rate in Excel: Knowledge Hub

- How to Use Nominal Interest Rate Formula in Excel
- How to Calculate Weighted Average Interest Rate in Excel
- How to Calculate Periodic Interest Rate in Excel
- How to Convert Monthly Interest Rate to Annual in Excel
- How to Calculate Interest Rate on a Loan in Excel
- How to Calculate APR in Excel
- How to Calculate Interest Rate from EMI in Excel
- How to Find Interest Rate in Future Value Annuity in Excel
- How to Create Effective Interest Method of Amortization in Excel

**<< Go Back to Â ****Excel for Finance**** | ****Learn Excel**