Divide by 100
Most interest rates are quoted and advertised in terms of a percentage. But if you want to run calculations using those numbers, you’ll need to convert them to decimal format. The simplest way to do that is to divide the number by 100. Example: To convert 75% to decimal format, divide 75 by 100. Search engines such as Google and Bing also make it easy to do quick calculations online, or you can also fire up your favorite calculator app if you prefer. To calculate with a search engine, type the expression you’re trying to solve into the search field. For example, type in “75/100.”
Move the Decimal Point to the Left
Another simple way to convert a quoted percentage to decimal format is to move the decimal two places to the left. Example: To convert 75% to decimal format, move the decimal point before the 7. After you do this several times, it will become natural, and you’ll be able to do it instantly in your head. With more complex numbers, you’ll still just move the decimal over two places. Here are a few more examples:
100% = 1150% = 1.575.435% = .75435.5% = .005
Example: APY Earnings
Assume your bank pays a 1.25% annual percentage yield (APY) on your savings account. How much will you earn over one year if you deposit $100? To find out, convert the interest rate to decimal format and multiply the result by the amount of your deposit. You’ll earn $1.25 per year for every $100 that you deposit.
Example: Purchase Discounts
Let’s say you want to buy an item that normally costs $45, and it’s on sale at 30% off. How much would you save, and how much would it cost on sale? You would pay $31.50 and save $13.50 on the item.
Converting Decimals to Percentages
What if you want to go the other way and convert a number from decimal to percentage format? As you might have guessed, just do the opposite of what you did above.
Multiply by 100
An easy approach is to multiply a number in decimal format by 100. Example: To convert .75 to a percentage, multiply it by 100.
Move the Decimal Point to the Right
Another way to convert from decimal to percentage format is to move the decimal point two places to the right. Example: To convert .75 to a percentage, move the decimal point to after the 5.
The Big Picture
For better or worse, sometimes financial calculations like this only give you a rough idea of how much you’ll spend or earn, although that estimate is still useful for making quick, big-picture evaluations. Converting a percentage to a decimal using the methods above is accurate, but it’s important to know what to do with that number after you’ve converted it. The next example shows how simple calculations with dollar amounts can lead you astray. Assume you’ll borrow $100,000 to purchase a home with a 30-year mortgage, and the interest rate is 6% per year. How much will you spend on interest each year? To get a rough, but not the exact answer, convert the interest rate to decimal format and multiply the result by the amount you borrow: However, you won’t spend exactly $6,000 per year on interest unless you use an interest-only loan. The real answer for most fixed-rate home loans would be more like $5,966.59 for the first year. With standard home and auto loans, you usually pay down the debt over time using level monthly payments. With each payment, a portion of the payment reduces your loan balance, and the remaining portion covers your interest cost. As you’re paying down the loan balance, there will only be a brief period, just the first month, when you owe the full $100,000. After that, you’ll owe less each month, and your interest costs will decrease accordingly. That process is called amortization.
