Internal Rate of Return (IRR)

The internal rate of return (IRR) is the interest rate that would need to have been credited to a stream of any combination of deposits or withdrawals over time in order to result in a given remaining account balance.

Let's say a person opens a savings account. He deposits money at various times over the years, but he also makes withdrawals from time to time. If he knows his current balance, the dates he deposited and withdrew, and the overall time elapsed since he opened the account, an internal rate of return calculation can tell him the effective interest rate he has earned.

Electronic spreadsheets such as Excel have an IRR function. (Back to IUL Table of Contents)