Knowing how to calculate interest rates on index funds is fairly easy. You’ll want to gauge the average interest rates both before and after you buy an index fund. An index fund is a mutual fund that attempts to mirror the performance of a financial index by owning a portfolio that is the same or close to the stocks or bonds in the index. Examples of financial indexes are the Dow Jones Industrial Average, or the Standard and Poors 500. To calculate interest rates on index funds, follow these steps:
- Go to the website of the index fund. You will find the current and past interest rates there. Look for some nifty graphs that show how the interest has changed over time.
- Call the 800 phone number of the fund to ask about the current interest rates.
- Buy a newspaper. Look in the financial section to find your index fund listed. Look across the columns across the top of the page to find the column that gives interest. Look down the page and across to find your fund’s interest rate.
- Listen and watch the news and financial shows on TV. Listen for information about your index fund and the financial index that it mirrors.
Keep in mind that your index fund will charge a fee for its administration. An index fund doesn’t take a lot of work compared to other types of mutual funds, so the fee should be small; less than 1%. This management fee will cut into your interest rate just a bit. Index funds are a fine way to diversify your portfolio.